STRATFORD  &  GKEEN 

646  So,  Main  -   Los  Angeles,  Cal, 


n      '  S 
(Jo  it-Mr  w- 


BY  THE  SAME  AUTHOR. 


ELEMENTS    OF    POLITICAL    ECONOMY. 

By  ARTHUR  LATHAM  PERRY,  Professor  of  History  and  Political  Economy 
in  Williams  College.  i?th  edition,  revised  and  enlarged.  One  vol.  crown 
8vo;  cloth,  la-jo. 


INTRODUCTION 


TO 


POLITICAL   ECONOMY 


BY 


ARTHUR  LATHAM  PERRY,  LL.D., 

Orrin  Safe  Professor  of  History  and  Political  Economy  in  Williams  College. 


A  market  for  products  is  products  in  market. 


NEW  YORK: 
CHARLES    SCRIBNER'S    SONS, 

743  AND  745   BROADWAY. 


COPYRIGHT, 

>.'  SCRIBNER,  ARMSTRONG,  &  CO. 
1877. 

COPYRIGHT,  1880, 
BY  CHARLES  SCRIBNER'S  SONS. 


Stereotyped  and  Printed 

By  Rand,  Avery,  &>  Company, 

IIJ  Franklin  Street, 

Boston. 


TO 


Brother, 
BAXTER    EDWARDS    PERRY, 

AND  TO 

fflg  Nepfjefo,  tfje  J3ltnU  pianist, 
EDWARD    BAXTER    PERRY. 


PEEFAOE. 


I  HAVE  endeavored  in  this  book  so  to  lay  the  foun- 
dations of  Political  Economy  in  their  whole  circuit, 
that  they  will  never  need  to  be  disturbed  afterwards  by 
persons  resorting  to  it  for  their  early  instruction,  how- 
ever long  and  however  far  these  persons  may  pursue 
their  studies  in  this  science.  It  seems  to  me  of  no 
advantage,  but  quite  the  reverse,  for  any  young  person 
to  gain  a  conception  of  a  science  that  will  have  to  be 
discarded  afterwards  for  a  better  one,  or  to  lay  in  the 
interest  of  ease  and  quickness  temporary  foundations 
that  will  have  to  be  relaid  before  any  solid  and  extended 
superstrucfure~can  be  built  upon  them. 

IMve~  endeavored  at  the  same  time  to  make  the 
sense  of  every  sentence  as  clear  as  language  can  make 
it,  and  to  connect  the  limitations  of  all  general  princi- 
ples with  the  statement  of  the  principles  themselves. 
Political  Economy  has  to  deal  throughout  with  the 
idea  of  Value,  which  is  not  only  an  abstract  but  also  a 
relative  idea;  and  it  is  a  task  of  some  difficulty  to 
combine  with  a  scientific  exactness  of  treatment  a 
plain  and  easy  way  of  putting  the  points  before  young 
minds.  I  dare  not  hope  that  I  have  succeeded  com- 
pletely in  this  task ;  for  I  appreciate  thoroughly  what 

5 


6  PREFACE. 

is  involved  in  the  fact  that  two  desires  and  two  efforts 
of  two  persons,  and  these  in  constant  action  and 
re-action  on  each  other,  must  be  borne  in  mind  through- 
out in  each  and  every  transaction  involving  Value ; 
but  I  have  aimed  constantly  at  simplicity  in  connection 
with  accuracy,  and  at  making  the  discussions  as  lively 
and  interesting  as  the  subject-matter  will  allow. 

I  have  also  tried  to  make  the  discussions  bear 
directly  upon  questions  of  current  interest,  such  as  the 
disputed  points  in  relation  to  Money,  Trade  and  Taxa- 
tion ;  and  the  illustrations  of  principles  have  been 
drawn  almost  entirely  from  recent  facts  and  events 
in  this  country  and  in  Europe ;  so  that  there  is  reason 
to  hope  that  the  book  may  prove  acceptable  to  general 
readers  of  all  ages  in  life,  while  its  more  special  aim  is 
to  become  a  text-book  in  high  schools,  academies  and 
colleges.  It  is  believed  both  by  author  and  publishers 
that  young  persons  of  ordinary  intelligence  and  train- 
ing, who  have  reached  the  age  of  fourteen  years,  will 
find  no  difficulty  in  mastering  every  point  in  these 
pages ;  and  it  is  also  believed  that  many  colleges, 
which  feel  compelled  to  allot  too  short  a  time  to  this 
science  for  the  mastery  of  a  more  copious  treatise,  will 
find  this  compact  presentation  of  economical  facts  and 
principles  just  adapted  to  their  wants. 

It  is  now  fifteen  years  since  my  larger  book  on  Polit- 
ical Economy  was  given  to  the  public.  I  am  deeply 
grateful  to  teachers  and  others,  whose  kindly  apprecia- 
tion of  that  book  has  already  carried  it  to  its  seven- 
teenth edition.  The  present  volume  is  not  designed  in 
any  sense  to  take  the  place  of  that :  because,  while  that 
is  copious,  this  is  condensed ;  while  that  is  comprehen- 
sive in  fifteen  chapters,  this  is  restrictive  in  six ;  and 


PREFACE.  7 

while  that  is  considerably  historical  even  in  form,  this 
recurs  to  history  solely  for  scientific  illustration.  Still 
the  present  volume  is  not  at  all  a  mere  compend  of 
that,  but  is  throughout  a  new  book,  very  few  sentences 
having  been  transferred  from  one  book  to  the  other, 
and  fresh  illustrations  having  been  employed  for  the 
most  part.  The  same  scientific  divisions  and  doctrines 
are  of  course  maintained  in  them  both ;  and  the  same 
profound  convictions  —  the  result  of  thirty  years'  study 
and  teaching  —  are  expressed  and  argued  in  them  both. 
If  the  public  shall  continue  to  accord  its  favor  to  the 
older  book,  it  is  my  firm  purpose  to  continue  to  keep  it, 
by  revision  and  amendment,  fully  abreast  of  the  times 
BO  long  as  it  premises  to  be  useful.  And,  if  the  public 
shall  approve  of  this  second  pains-taking  attempt  at 
once  to  sj'stematize  and  popularize  Political  Economy, 
I  shall  spare  no  future  pains  to  make  it  as  perfect  in 
substance  and  in  form  as  my  abilities  may  permit  it 
to  become. 

The  readers  of  these  books  have  certainly  not  found 
in  either  of  them  the  Scotch  Economy  of  Adam  Smith, 
the  English  Economy  of  John  Stuart  Mill ,  or  the  Amer- 
ican Econom}'  of  any  of  m}'  predecessors  in  this  coun- 
try ;  that  is  to  say,  my  main  point  of  view,  and  the 
consequent  scientific  outlines  of  the  whole  subject,  are 
quite  different  from  theirs :  not  that  I  sought  for  novel- 
ties, but  I  sought  for  a  point  of  view  that  would  yield 
a  distinct  province  for  the  science,  —  a  province  that 
could  be  circumscribed  by  an  exact  definition,  and  then 
scientifically  subdivided  in  accordance  with  an  actual 
state  of  things.  I  found  that  province  to  be  described 
by  the  terms  Buying  and  Selling,  and  the  subdivis- 
ions of  things  bought  and  sold  to  be  Commodities, 


8  PREFACE. 

Services,  and  Claims  ;  and  accordingly  I  defined  Politi- 
cal Economy  to  be  the  Science  of  Sales,  and  proceed- 
ed to  elaborate  (very  imperfectly  indeed  at  first)  the 
whole  subject  from  that  single  point  of  view,  and  was 
delighted  to  find  that  every  thing  fell  orderly  into  its 
proper  place  under  that  view,  that  the  gain  over  the 
old  Economy  was  great  in  point  of  simplicity  and  ex- 
actness and  certainty,  and  that  here  indeed  was  a 
Bcience  "  clear  as  the  sun  and  beautiful  as  the  moon." 
The  Frenchmen  Condillac  and  Bastiat,  the  Englishmen 
Whately  and  Macleod,  and  several  others  also,  had 
labored  in  these  precise  directions  before  me  ;  but  with 
the  exception  of  Bastiat's,  to  which  I  am  always  most 
glad  to  acknowledge  my  obligations,  their  work  was 
wholly  unknown  to  me  when  I  published  my  first  book 
in  1866 ;  and  I  do  not  know  that  any  one  of  them  all 
ever  carried  out  before  that  time  into  all  its  parts  this 
fundamental  conception  of  Political  Economy. 

I  have  long  been,  and  am  still,  ambitious  that  these 
books  of  mine  may  become  the  horn-books  of  my  coun- 
trymen in  the  study  of  this  fascinating  science.  Unless 
indeed  these  may  already  be  said  to  be  such,  there  are 
certainly  none  such  at  present ;  and  it  is  a  pleasure  to 
think  that  only  better  books  than  these  can  ever  dis- 
place them  from  their  hold  already  gained  on  the 
public. 

As  the  motto  on  the  title-page  of  this  volume  has 
been  in  certain  quarters  referred  to  as  a  proverb,  I 
deem  it  proper  to  state  that  the  expression  is  my  own, 
and  that  it,  may  be  found  in  the  first  edition  of  the 
book  already  referred  to. 

A.  L.  PEKRV. 
WILLIAMS  COLLEGE,  Aug.  16, 1880. 


TABLE    OF    CONTENTS. 


CHAPTER  L 

PAGE. 

VALUK   .  ....    11 


CHAPTER  IL 
PRODUCTION 78 

CHAPTER  III. 
COMMERCE 145 

CHAPTER  IV. 
MONEY 209 

CHAPTER  V. 
CREDIT 290 

CHAPTER  VI. 
TAXATION 342 


POLITICAL  ECONOMY. 


CHAPTER  I. 

VALUE. 

THE  first  thing  to  learn  in  the  study  of  Political 
Economy  is  the  answer  to  the  question,  "  What  is 
if,  about?"  The  adjective  "Political"  set  before 
the  noun  "Economy"  leads  some  people  to  sup- 
pose that  the  subject  is  somehow  related  to  Poli- 
tics, which  is  only  true  in  a  remote  and  incidental 
way;  and  thus  this  name,  under  which  the  science 
has  mostly  gone  since  Antoine  de  Montchristien 
issued  his  book  with  this  title  at  Rouen,  in  France, 
in  1613,  has  been  some  hinderance  to  the  proper 
unfolding  and  understanding  of  the  subject;  es- 
pecially as  Aristotle,  a  great  thinker  among  the 
Greeks,  first  used  this  name  in  a  different  and 
political  sense,  although  he  threw  out  many  sound 
thoughts  upon  the  real  subject-matter  of  our 
science  more  than  three  hundred  years  before 
Christ. 

To  remove  this  hinderance  out  of  the  way,  sev- 

11 


12  POLITICAL  ECONOMY. 

eral  other  names  for  the  science  have  been  sug 
gested  from  time  to  time ;  for  example,  "  Catalac« 
tics,"  from  the  Greek  verb  to  exchange,  suggested 
by  Archbishop  Whately  in  1831,  and  "  Economics," 
suggested  more  recently  by  Mr.  Macleod.  The 
last,  which  is  perhaps  the  best,  drops  the  usual 
adjective,  but  retains  with  a  changed  ending  the 
noun,  which  comes  from  two  Greek  words  mean- 
ing the  law  of  the  estate.  Stern  usage,  however, 
seems  already  to  have  fixed  the  old  name  beyond 
the  likelihood  of  any  general  adoption  of  a  new 
one;  and  there  is  a  certain  reason,  which  will 
appear  by  and  by,  why  even  the  adjective  "  Politi- 
cal "  is  not  wholly  at  fault  in  this  connection. 

What  is  it  about  ?  Let  one  stand  for  an  hour 
upon  London  Bridge,  —  perhaps  the  busiest  bit  of 
street  in  the  world,  —  and  watch  the  passers-by 
and  whatever  else  can  be  seen  from  that  stand- 
point, and  he  will  soon  satisfy  himself  that  the 
most  of  the  bustling  activity  in  view  is  the  activity 
of  buyers  and  sellers.  Goods  of  every  description 
are  being  carried  back  and  forth;  artisans  of 
every  name  are  going  and  coming ;  merchants  of 
many  nationalities  step  within  the  field  of  view , 
porters  and  servants  and  errand-boys  are  moving 
to  and  fro ;  vast  warehouses,  built  in  the  interest 
of  trade,  lift  their  roofs  towards  heaven ;  the  river 
above  and  the  "  Pool "  below  are  alive  with  boats 
and  ships ;  and  nearly  the  whole  of  all  this,  and 
of  much  more  than  all  this,  is  in  direct  reference  to 
buying  and  selling.  Doubtless  some  few  persons, 


VALUE.  13 

like  our  observer  himself,  may  be  there  for  mere 
pleasure  or  instruction ;  but,  for  the  most  part,  the 
persons,  the  things,  the  buildings,  even  the  bridge 
itself,  are  there  in  the  intefest  of  Sales  of  some 
sort.  What  is  thus  true  of  a  single  part  of  Lon- 
don is  true  of  every  other  part  of  London,  of 
every  part  of  New  York,  and  of  Chicago,  and,  in 
its  measure,  of  every  other  city,  village,  and  ham- 
let in  the  whole  world.  Wherever  there  is  a 
street  there  is  trade,  wherever  there  is  a  market 
there  are  buyers  and  sellers. 

One  cannot  live  long  in  the  world  without  see- 
ing and  continuing  to  see  that  by  much  the  largest 
part  of  the  visible  activities  of  men  is  employed  in 
some  form  of  buying  and  selling.  To  get  some- 
thing ready  to  sell,  and  then  to  sell  it,  is  the  prin- 
cipal work  of  all  civilized  people.  The  farm,  the 
shop,  the  store,  the  street,  the  bank,  the  office,  the 
market,  the  school,  the  church,  —  all  are  places  for 
buying  and  selling.  One  soon  sees,  too,  that  each 
buyer  is  at  the  same  time  a  seller,  and  each  seller 
at  the  same  moment  a  buyer.  The  buyer  must 
pay  for  what  he  buys  by  selling  that  which  he 
pays  with,  and  the  seller  take  pay  for  what  he 
sells  by  buying  that  with  which  he  is  paid.  In- 
deed, no  man  can  buy  without  selling,  or  sell 
without  buying.  Our  observer  perceives  also 
after  a  while,  that  as  the  world  gets  older  and 
more  civilized,  and  as  any  society  of  men  any- 
where becomes  more  advanced,  these  relations 
between  individuals  as  buyers  and  sellers  become 


14  POLITICAL  ECONOMY. 

more  numerous  and  intricate,  and  the  actions  put 
forth  by  them  all  in  reference  to  sales  of  some 
kind  become  more  apparent,  more  absorbing,  and 
more  cosmopolitan.  Precisely  these  actions  in  their 
motive,  operation,  and  result,  are  the  subject  of  Polit- 
ical Economy.  Our  science  has  to  do  with  nothing 
on  earth  but  Sales. 

Can  there  be  a  strict  Science  of  Sales?  Cer- 
tainly. There  is  such  a  science  already,  although 
it  has  been  largely  built  up  under  a  narrow  and 
imperfect  nomenclature.  It  has  usually  been 
called,  in  England  and  America,  the  Science  of 
Wealth ;  but  the  word  "  Wealth  "is  at  the  same 
time  too  vague  and  too  narrow  for  the  purposes  of 
this  science,  and  has  been  the  main  reason  of  its 
relatively  slow  progress,  and  of  its  still  too  slight 
public  recognition.  This  word  is  entirely  needless 
as  well  as  always  confusing,  and  has  now  at  length 
been  discarded  as  a  scientific  term,  to  the  great 
advantage  of  the.  science  in  point  of  breadth,  clear- 
ness, and  certainty.  While  deeply  indebted  to 
Aristotle,  to  Quesnay,  to  Adam  Smith,  to  Bastiat, 
and  to  many  more,  who  have  used  this  word,  or 
some  equally  concrete  equivalent,  the  science  can 
be  under  no  obligation  to  continue  to  use  the 
poor  tools  of  its  founders  when  every  way  better 
ones  offer  themselves  to  its  later  laborers. 

To  show  that  Political  Economy  fulfils  every 
condition  of  a  strict  science,  it  becomes  necessary 
to  define  that  word.  A  Science  is  the  body  of  exact 
definitions  and  sound  principles  educed  from  and 


VALUE.  15 

applied  to  a  single  class  of  facts  or  phenomena. 
Sales,  or,  what  has  precisely  the  same  economic 
meaning,  Exchanges,  are  the  class  of  facts  with 
which  our  science  has  to  do.  They  are  a  class  of 
facts  distinct  by  themselves,  —  never  confounded 
with  gifts,  and  never  confounded  with  thefts, — 
and  that  is  the  first  condition  of  a  science.  Then 
they  are  open  to  observation  and  analysis,  to  all 
the  processes  of  Induction  and  Deduction,  conse- 
quently to  "exact  definitions"  and  the  educing 
and  testing  of  "principles," — and  that  is  the 
second  condition  of  a  strict  science.  Moreover, 
these  facts  are  universal:  everybody  takes  part 
in  them  more  or  less,  —  and  thus  the  science  has 
the  advantage  of  everybody's  introspection  and 
experience,  since  everybody  knows  something  of 
the  motive,  the  operation,  and  the  result  of  those 
actions  peculiarly  human,  which  we  call  sales  or 
exchanges.  Arjd,  lastly,  these  actions  are  of  such 
a  nature  that  all  the  parts  of  them  may  be  orderly 
arranged  into  a  "  body ; "  all  the  definitions  and 
principles,  the  proofs  and  illustrations,  may  be 
grouped  in  one  harmonious  whole. 

In  developing  this  science  thus  shown  to  be 
possible  and  actual,  we  shall  find  that  sales  in  all 
their  kinds,  extent,  and  gainfulness,  are  influenced 
and  determined  by  three  things  only,  to  which,  as 
the  sources  whence  all  the  points  and  principles 
of  the  science  are  drawn,  we  shall  constantly  need 
to  have  our  attention  directed :  namely,  —  first, 
tho:>e  invariable  attributes  of  human  nature  which 


16  POLITICAL  ECONOMY. 

have  always  led  men,  and  always  will  lead  them, 
to  buy  and  sell;  second,  those  arrangements  of 
Providence  in  the  physical  earth  and  the  structure 
of  society,  by  which  his  design  is  manifest  that 
men  should  promote  their  welfare  by  buying  and 
selling;  and,  third,  those  laws  and  usages  devised 
ly  men  to  facilitate  on  the  one  hand,  or  to  impede 
on  the  other  hand,  the  privilege  of  buying  and 
selling.  To  avoid  monotony  of  expression,  we 
shall  use  interchangeably  the  synonymous  terms, 
"  Sales  "  and  "  Exchanges,"  to  denote  those  actions 
of  men,  which  are  the  direct  subject  of  our  study. 
These  actions  are  not  done  in  a  corner  :  the  earli 
est  dawn  of  History  shows  us  men  already  engaged 
in  them  ;  and  ths  welfare  and  progress  of  mankind 
have  always  been  promoted  by  them. 

The  one  peculiarity  of  the  actions  referred  to, 
that  brings  them  under  the  view  of  this  science, 
is,  that  one  person  renders  something  to  another  for 
the  sake  of  receiving  back  from  that  person  some- 
thing  in  return.  The  milkman,  for  example,  deliv- 
ers to  the  baker  a  quart  of  milk,  and  receives  in 
pay  a  loaf  of  bread.  This  is  a  simple  instance 
of  exchange,  and  contains,  in  substance,  the  points 
of  the  whole  matter.  Let  us  analyze  this  instance. 

First,  there  are  two  persons,  the  milkman  and 
the  baker.  Second,  there  are  two  things,  the  quart 
of  milk  and  the  loaf  of  bread.  Third,  there  are 
two  desires,  the  desire  of  the  milkman  for  bread 
and  the  desire  of  the  baker  for  milk.  Fourth, 
there  are  two  efforts  involved,  the  effort  of  the 


YALTJE.  17 

milkman  to  procure  the  milk  and  the  effort  of  the 
baker  to  procure  the  loaf.  Fifth,  there  are  two 
estimates  implied,  the  estimate  of  the  milkman  by 
•which  he  prefers  the  loaf  to  the  milk,  and  the 
estimate  of  the  baker  by  which  he  prefers  the 
milk  to  the  loaf.  Sixth,  there  are  two  actions, 
the  action,  namely,  of  each  party  passing  over  to 
the  other  the  ownership  in  something  for  the  sake 
of  receiving  from  the  other  the  ownership  in  some- 
thing else.  Seventh,  there  are  two  satisfactions, 
for  the  sake  of  which  the  transaction  was  had, 
and  in  which  the  transaction  ends,  namely,  the 
satisfaction  of  the  milkman  in  the  possession  of 
the  loaf  of  bread  and  the  satisfaction  of  the  baker 
in  the  possession  of  the  quart  of  milk.  It  is  with 
such  transactions  as  this,  and  only  with  such, 
every  one  of  which  has  the  peculiarity  defined 
above,  and  every  one  of  which  can  be  analyzed 
with  the  same  results  as  this,  that  our  science  of 
Political  Economy  has  to  do. 

In  this  instance  of  the  exchange  of  the  milk  for 
the  bread,  or,  what  is  exactly  the  same  thing,  the 
bread  for  the  milk,  the  things  exchanged  are 
material,  visible,  tangible  things,  such  as  are 
called  in  Political  Economy  Commodities.  This  is 
the  first  class  of  things  exchanged,  and  they  must 
be  carefully  noted.  Originally,  the  word  commod- 
ity was  an  abstract  noun,  and  meant  nearly  the 
same  as  utility.  Gradually  it  took  on  a  concrete 
sense,  and  came  to  mean  the  things  that  afford  the 
utility  rather  than  the  utility  itself,  such  as  goods, 


18  POLITICAL  ECONOMY. 

wares,  merchandise,  the  produce  of  land  and  man« 
ufactures.  About  two  hundred  years  ago,  Locke 
said,  "  Commodities  are  movables,  valuable  by 
money,  the  common  measure."  Although  the 
notion  of  movableness  was  long  attached,  and  is 
still  attached  more  or  less,  to  the  term  Commodi- 
ties, the  legal  distinction  between  Real  Estate  and 
Movables  is  quite  different  from  the  economical 
distinction  between  commodities  and  the  othor 
two  classes  of  exchangeable  things. 

The  distinctive  feature  of  commodities  is  the  fact 
that  they  are  material  rather  than  movable,  and,  as 
material,  may  be  possessed,  employed,  and  sold  by 
individuals.  The  ownership  always,  and  the  com- 
modity itself  usually,  pass  over  at  the  time  of  the 
sale  into  the  hands  of  the  buyer.  For  example,  a 
barrel  of  flour,  a  bale  of  cotton,  a  bushel  of  corn, 
a  bag  of  coffee,  are  commodities.  All  such  salable 
things  from  the  jewel  to  a  top  are  commodities. 
Horses  and  cattle  are  commodities.  Ships  are  com- 
modities. Houses  and  lands,  provided  an  absolute 
title  to  the  whole  of  them  can  be  given  by  one  per- 
son to  another,  are  commodities  also.  A  railroad 
might  be  a  commodity  under  the  definition,  but  is 
commonly  bought  and  sold  by  means  of  Share* 
so-called,  which  belong  to  a  different  class  of 
salable  things,  as  we  shall  see.  When,  in  1867, 
the  United  States  Government  purchased  of  the 
Russian  empire  for  $7,200,000  the  territory  called 
Alaska,  both  the  sale  and  purchase  were  acts  of 
sovereignty,  and  acts  of  sovereignty  are  very 


VALUE.  19 

different  from  acts  of  ordinary  sale,  and  conse- 
quently, Alaska  could  not  properly  be  called  a 
commodity.  Governments  often  buy  and  sell 
commodities  proper,  but  in  this  case  they  are  act- 
ing commercially,  as  individuals  act,  and  not  in 
their  capacity  as  sovereignties.  It  is  only  with 
sales  in  a  purely  commercial  sense  that  our  science 
has  any  thing  to  do. 

The  exchanges  in  the  market-place,  the  trade  of 
the  shops,  the  commerce  of  the  world,  are  largely 
in  commodities.  But  it  would  be  a  serious  mis- 
take to  suppose  that  nothing  is  ever  bought  or 
sold  excepting  things  of  this  character.  Over 
against  commodities,  and  yet  having  perfectly  the 
peculiarity  already  mentioned,  stands  a  second 
class  of  salable  things,  what  are  called  in  this 
science  Personal  Services. 

For  example,  a  physician  is  called  to  prescribe 
for  a  patient  in  a  case  of  fever.  He  renders  to 
that  patient  no  material  thing,  not  even  medicine. 
He  writes  a  prescription  merely.  But  he  renders 
something  nevertheless ;  something,  too,  which  the 
patient,  or  his  friends,  prefer  to  that  which  he  or 
they  must  render  in  return  ;  the  physician  renders 
the  intangible  result  of  his  medical  skill,  and  the 
patient,  if  he  gets  well,  or  his  representative,  if  he 
doe?  not,  in  due  time  renders  a  five-dollar  gold-piece 
in  pay.  This  is  a  commercial  transaction.  It  is  a 
sale.  The  physician  sells  the  result  of  his  skill, 
which  was  acquired  for  that  very  purpose.  He 
sells  a  personal  service,  and  takes  in  this  case  a 


20  POLITICAL  ECONOMI 

commodity  for  pay.  He  might  sell  his  personal 
service,  and  take  in  pay  the  personal  service  of 
somebody  else,  as,  for  example,  the  lawyer's  ser- 
vice, who  collects  for  him  his  bills.  The  domestic 
servant,  the  dramatic  actor,  the  skilful  singer,  the 
eloquent  advocate,  the  patient  teacher,  the  faithful 
preacher,  and  a  thousand  more,  sell  their  personal 
services,  that  is,  render  an  immaterial,  intangible 
something  to  others  for  the  sake  of  receiving  from 
them  something  else  in  return,  and  thus  come  com- 
pletely under  the  view  of  Political  Economy.  No 
inconsiderable  part  of  the  exchanges  of  the  world 
are  in  things  of  this  second  sort. 

But  there  is  still  one  other  class  of  exchangeable 
things.  A  little  way  back,  a  reference  was  made 
to  railroad  shares.  These  may  illustrate  the  nature 
of  the  third  and  only  remaining  class  of  things 
that  are  ever  bought  and  sold.  A  railroad  share 
does  not  give  a  title  to  a  specific  part  of  the  rail- 
road, still  less  to  the  railroad  itself,  as  a  deed  does 
to  real  estate,  or  a  bill  of  sale  to  personal  property, 
it  is  a  claim  or  right  merely.  It  gives  the  owner  a 
claim  to  a  certain  proportion  of  the  net  earnings 
of  the  railroad.  It  gives  him  a  right  to  participate 
in  a  certain  way  in  the  management  of  the  road. 
It  is  property,  because  it  was  bought  and  may 
again  be  sold.  It  is  not  a  title  to  any  specific 
thing  whatever,  as  a  bill  of  lading  is  a  title  to  a 
parcel  of  goods,  but  a  general  claim,  or  a  right  to 
demand  something  of  somebody  under  specified 
conditions. 


VALUE.  21 

A  railroad  bond  is  similar  to  a  railroad  share 
in  its  nature  as  a  claim,  though  the  specified 
conditions  of  the  right  to  demand  something  in 
virtue  of  it  are  different.  A  bond  of  the  United 
States  vests  in  the  owaer  a  right  to  demand  of  the 
government  a  certain  sum  as  interest  and  another 
certain  sum  as  principal  at  certain  specified  times. 
A  United  States  treasury  note,  commonly  called  a 
greenback,  is  a  printed  promise  of  the  government 
to  pay  to  the  bearer  a  certain  number  of  dollars. 
Dollars  are  a  commodity,  but  these  promises  are  a 
claim.  Bank  bills,  bank  checks,  all  notes  of  hand, 
charges  in  a  trader's  book,  copyrights,  leases,  and 
many  more  such  things,  belong  to  this  third  class 
of  salable  things.  I  shall  generally  call  them  claims. 
In  some  connections,  the  word  credits  best  expresses 
their  nature,  in  other  connections,  the  word  rights^ 
—  meaning  always,  of  course,  commercial  rights. 
The  amount  of  transactions  throughout  the  world 
in  this  class  of  things  is  something  amazing :  the 
daily  average  exchanges  of  checks  and  bills  at 
the  London  Bankers'  Clearing  House  is  about 
$100,000,000 ;  at  the  New  York  Clearing  House  at 
present,  a  little  less  than  $75,000,000.  In  1872,  the 
clearings  at  New  York  were  over  $32,000,000,000 
for  the  year.  These  immense  sums  represent  but 
a  small  fraction  of  the  amount  of  the  world's 
annual  transactions  in  claims  of  all  sorts,  includ- 
ing international  bills  of  exchange. 

If  any  one  of  my  readers  is  disposed  to  question 
the  accuracv  of  this  analysis,  and  to  think  that 


22  POLITICAL  ECONOMY. 

there  are  more  than  three  classes  of  purchasable 
things,  the  exercise  of  his  ingenuity  in  trying  to 
discover  a  fourth  class  is  likely  to  convince  him  in 
a  little  time  that  there  is  here  a  true  trinity,  as  so 
often  elsewhere  in  Nature.  The  interchanges  of 
friendship,  the  gifts  and  self-denials  of  love,  the 
bestowments  of  benevolence,  as  well  as  all  frauds, 
ihefts  and  robberies,  are  clearly  out  of  the  ques- 
tion here.  These  fall  into  the  sphere  of  morals,  not 
into  the  sphere  of  economy.  The  renderings  of 
charity  are  free  —  they  look  not  for  a  return ;  the 
impulses  of  Duty  are  quite  distinct  from  the  im- 
pulses of  trade ;  and  stealing,  to  which  all  fraud  is 
assimilated,  is  a  function  of  force,  and  not  of  mutual 
consent.  The  economical  rendering  is  always  vol- 
v  ntary,  is  always  made  in  view  of  a  return  and  for 
the  sake  of  a  return,  and  this  gives  a  pretty  sharp 
line  of  difference  between  economy  and  morals. 

If,  then,  there  are  only  three  classes  of  things 
commercially  exchangeable,  it  follows  that  there 
are  only  six  cases  of  exchange  possible ;  —  namely, 
(1)  a  commodity  for  a  commodity,  as  the  milk  for 
the  bread ;  (2)  a  commodity  for  a  personal  service, 
as  the  half-eagle  for  the  doctor's  prescription ;  (3) 
a  commodity  for  a  claim,  as  a  house  for  ten  rail- 
road shares ;  (4)  a  personal  service  for  a  personal 
service,  as,  the  physician's  exchange  with  the 
lawyer,  already  mentioned ;  (5)  a  personal  service 
for  a  claim,  as  a  month's  work  for  a  fifty-dollar 
bill ;  and  (6)  a  claim  for  a  claim,  as  a  lease  of  a 
hotel  for  a  bond  of  the  United  States.  I  believe 


VALUE.  *"" 

every  commercial  transaction,  that  ever  was 
made  or  ever  will  be  made,  falls  under  one  or 
other  of  these  six  cases. 

The  field  of  our  science  is  now  pretty  definitely 
before  us.  We  are  to  inquire  after  the  terms,  the 
definitions,  the  principles  and  their  proofs,  that 
arc  concerned  with  all  these  exchanges.  It  is 
obvious  from  all  the  old  records  of  our  race  that 
such  exchanges  have  been  very  numerous  from 
the  beginnings  of  history ;  it  is  open  to  observa- 
tion and  record  that  these  exchanges  are  con- 
stantly becoming  more  numerous,  delicate  and 
complicated ;  the  thoughts  and  efforts  of  mo*,, 
men  are  constantly  employed  in  making  CA 
changes,  or  in  preparing  to  make  them ;  the  con- 
tinued existence,  the  increased  comforts,  the  moral 
progress  of  mankind  are  largely  dependent  upon 
the  ease  and  multiplication  of  exchanges;  and 
while  many  men  have  always  given  their  minds 
to  devise  means  to  make  exchanges  easy,  it  is  also 
true  that  some  men  have  given,  and  are  still 
giving,  their  minds  to  devise  expedients  to  make 
exchanges  difficult.  The  practical  importance, 
accordingly,  of  this  subject  is  very  great.  It 
would  be  impossible  to  overstate  its  importance. 
The  French  economist  Say  has  shown  that  most 
of  the  European  wars  of  the  seventeenth  and 
eighteenth  centuries  grew  out  of  false  principles 
relating  to  this  subject.  Very  lately  Gov.  Mus« 
grave  has  said,1  "  I  suppose  that  the  teachers  of 

1  Studies  iu  Political  Economy.    London.  1870. 


24  POLITICAL  ECONOMY. 

no  science  have  so  much  human  misery  to  answer 
for,  or  have  assisted  at  so  much  fraud,  as  the 
doctors  of  Political  Economy."  The  late  Mr. 
Buckle  affirmed  on  the  other  hand  that  "Adam 
Smith  contributed  more,  by  the  publication  of  his 
Wealth  of  Nations,  towards  the  happiness  of  man, 
than  has  been  effected  by  the  united  abilities  of 
all  the  statesmen  and  legislators  of  whom  history 
has  preserved  an  authentic  account."  It  is,  there- 
fore, to  questions  of  vital  o.onseonence  to  the  wel- 
fare and  progress  or  society  that  the  attention  of 
the  students  of  this  science  is  called. 

Now  we  are  ready  for  a  technical  definition  of 
political  economy.  It  is  the  Science  of  Exchanges. 
K  was  the  French  writer  Condillac,  in  1776,  the 
SUme  year  in  which  Adam  Smith's  "Wealth  of 
Nations  "  appeared,  who  first  gave  this  definition 
to  the  science.  The  popularity  of  the  latter 
book  overshadowed  the  definition  for  a  long  time 
until  it  was  re-proposed  by  Whately  in  1831,  and 
adopted  by  the  Scotch  economist  Macleod  in 
1858,  and  by  the  present  writer  in  the  first  edi- 
tion of  his  larger  book  in  1866.  It  may  now  bo 
said  to  have  become  the  leading  definition  in  all 
countries,  and  it  is  certain  ultimately  lo  dislodge 
all  others,  because  only  this  expression  or  some 
equivalent  one  defines  perfectly  the  subject-mat- 
ter of  the  science.  The  German  writer  Kiehl l 
gives  as  his  more  exact  definition  of  the  subject 
an  equivalent  phrase  which  we  shall  consider  a 

1  Anfangsgriinde  der  Volkswirthschaft.    Berlin,  1876. 


VALUE.  25 

little  further  on.  Just  so  far  as  the  word 
"  wealth "  appears  in  the  definition  and  scientific 
discussions  of  the  subject,  cloudiness  in  it  a^d 
distrust  of  it  appear  also,  because  "that  wor\  is 
not  broad  enough  and  definite  enough  for  the  use 
proposed,  and  because  indefiniteness  at  the  begin- 
ning carries  indefiniteness  throughout  tho  dis- 
cussion. On  the  other  hand,  the  term  "  Ex- 
changes" circumscribes  the  field  of  economical 
inquiries  simply  and  exactly. 

But  we  are  not  yet  through  with  our  prelimi- 
naries. Another  piece  of  analysis  must  conduct 
us  through  the  word  "  exchanges  "  to  a  word  still 
more  important  than  that,  —  to  the  word  which  is 
the  title  of  this  our  opening  chapter.  In  any  one 
of  the  six  cases  of  possible  exchanges,  already 
exemplified,  we  need  a  term  to  express  the  power 
of  either  of  the  things  exchanged  to  procure  the 
other.  Take  again,  for  example,  the  loaf  of  bread 
and  the  quart  of  milk.  There  is  something  in 
the  loaf  then  and  there, — not  indeed  in  itsel/ 
considered,  but  considered  in  reference  to  th>j 
quart  of  milk,  and  to  the  desires  and  estimates 
of  the  owners  of  each,  —  that  enables  its  owner 
to  procure  by  means  of  it  the  quart  of  milk. 
Precisely  the  same  sort  of  power  in  the  same  cii- 
cumstances  enables  the  owner  of  the  milk  to  pro- 
cure the  bread.  It  goes  almost  without  saying, 
that  persons  are  more  important  in  Political 
Economy  than  things ;  that  the  buyer  is  of  more 
Consequence  economically  as  well  as  morally  than 


26  POLITICAL  ECONOMY. 

that  which  he  buys,  and  the  seller  than  that 
which  he  sells.  The  power  consequently  is  not 
in  either  commodity  looked  at  by  itself,  but  it  is 
in  each  looked  at  in  relation  to  the  other,  and  to 
the  wants  of  the  two  owners  respectively.  The 
one  commodity  has  this  power  in  the  same  sense 
as  the  other,  and  the  degree  of  it  in  each  is 
measured  in  the  terms  of  the  other.  How  much 
purchasing-power  has  the  loaf?  Enough  to  buy 
the  milk.  How  much  corresponding  power  has  the 
milk?  Enough  to  buy  the  bread.  Each  accord- 
ingly is  measured  in  the  terms  of  the  other.  So 
of  all  exchanges  whatsoever. 

This  power  of  any  exchangeable  thing  in  any 
one  of  the  three  classes,  to  buy  in  the  way  just 
indicated  any  other  exchangeable  thing  in  any 
one  of  the  three  classes,  is  what  is  called  in  our 
science  Value.  Thus  we  have  reached  the  foun- 
dation-word in  Political  Economy.  The  meaning 
of  it  must  be  caught  at  the  beginning,  and  held 
to  the  end  of  our  studies.  It  is  not  accidental 
that  this  word  stands  as  the  title  of  the  first 
chapter  of  the  book  before  us ;  because  to  unfold 
it  in  its  scientific  sense  is  the  first  main  thing  that 
confronts  economists,  and  because  by  over-master- 
ing the  difficulties  presented  by  its  meaning  all 
after  economical  inquiries  become  comparatively 
easy.  The  word  itself  is  derived  from  the  Latin 
verb  valere,  which  means  to  pass  for,  to  be  worth, 
BO  that  the  comparison  or  relation  that  is  always 
involved  hi  sales  is  present  in  the  original  mean" 


VALUE.  27 

tng  of  the  word.  Value  accordingly  is  a  conse- 
quence of  sales,  and  is  never  realized  except  by 
means  of  them.  We  can  never  say  with  certainty 
that  any  thing  has  value  until  an  actual  sale  of  it 
has  determined  just  how  much  the  value  is. 
Value  may  be  expected  from  a  future  sale  of  some- 
thing, and  there  may  be  an  estimate  as  to  its 
amount;  but  value  never  comes  into  being  until 
the  sale  has  taken  place,  and  then  the  amount  of 
the  value  is  the  thing  received  in  exchange,  and 
even  then  it  is  not  certain  that  a  second  sale  of 
the  first  thing  will  bring  in  the  same  amount 
of  the  second  thing.  Value,  though  of  vast  im- 
portance in  human  affairs,  is  transient  in  its 
nature.  It  comes  and  goes.  It  appears  and  re- 
appears. As  always  a  consequent  of  exchanges, 
it  is  always  consequently  changeable.  For  ex- 
ample, the  baker  may  have  expected  to  exchange 
his  loaf  with  the  milkman  for  a  quart  of  milk,  but 
it  is  never  safe  for  him  to  announce  that  his  loaf 
is  worth  that  until  it  has  actually  been  exchanged 
for  that.  The  views  of  the  milkman  are  liable  to 
change  in  regard  to  bread  in  general,  and  espe- 
cially in  regard  to  that  particular  loaf;  and  even 
the  baker  himself  may  not  desire  at  the  decisive 
moment  that  particular  quart  of  milk  so  much  as 
he  expected.  If  they  trade,  the  loaf  is  worth  the 
milk,  and  the  milk  is  worth  the  loaf ;  and  value 
thus  created  passes  out  of  being  in  this  case  by 
;he  probably  immediate  eating-up  of  the  two 
*  tides. 


28  POLITICAL  ECONOMY. 

All  this  shows  us  the  need  of  one  other  tech- 
nical word  before  we  can  give  the  final  definition 
to  Value.  This  word  is  Services.  In  order  to 
define  Value,  and  at  the  same  time  to  throw  a 
clear  light  upon  the  inmost  nature  of  its  facts, 
Political  Economy  finds  it  necessary  to  use  the 
word  Services  in  a  broad  sense,  including  both 
what  we  have  called  personal  services,  and  also 
every  other  economical  rendering.  To  the  bril- 
liant French  writer  Bastiat,  who  died  in  1850,  we 
owe  the  introduction  of  this  scientifically  admira- 
ble word.  A  service  in  this  broad  sense,  which  is 
in  no  danger  of  being  confused  with  the  specific 
sense  already  explained,  is  the  rendering  of  any 
thing  for  something  in  return.  In  this  sense,  the 
man  who  sells  me  a  ton  of  hay,  the  second  man 
who  sells  me  ten  shares  of  bank-stock,  and  my 
gardener  who  sets  and  tends  the  celery,  all  alike 
do  me  a  service,  and,  in  paying  them,  I  do  each  of 
them  a  service  in  return.  Buying  and  selling  is 
nothing  in  the  world  but  the  rendering  of  mutual 
services ;  and  the  beauty  of  the  term  "  services  " 
consists  in  this,  that  it  always  implies,  (1)  two 
persons,  each  of  whom  is  reciprocally  serving  and 
served  ;  (2)  two  efforts,  the  effort  of  each  person 
serving ;  (3)  two  desires,  the  'desire  of  each  per- 
son served ;  (4)  two  things,  the  thing  rendered 
by  each  person ;  (5)  two  estimates,  the  estimate 
by  which  each  prefers  the  thing  offered  by  the 
other  to  his  own  thing  offered ;  and  (6)  two  satis- 
factions, the  satisfaction  of  each  in  the  thing 
received. 


VALUE.  29 

Having  now  this  term  "Services,"  with  ita 
definite  economical  meaning,  we  are  able  to  define 
ultimately,  and  with  precision,  the  term  Value. 
It  will  require,  however,  beyond  the  definition,  a 
good  deal  of  further  elucidation.  Since  exchanges 
are  the  rendering  of  mutual  services  by  two  per- 
sons, Value  is  the  relation  of  mutual  purchase  ex- 
tal>lished  between  two  services  by  their  exchange. 
It  will  be  seen  at  once  from  this  definition,  how 
indifferent  it  is,  so  far  as  the  deeper  meaning  is 
concerned,  whether  we  define  Political  Economy 
the  Science  of  Exchanges  or  the  Science  of 
Value.  At  bottom  the  two  mean  the  same.  There 
can  be  no  exchanges  without  value,  and  no  value 
without  exchanges.  We  have  already  intimated 
that  Kiehl  defines  Political  Economy  as  the 
Science  of  Values.1  There  is  a  fair  reason,  never- 
theless, why  the  former  definition  is  technically 
to  be  preferred,  because  exchanges  or  sales  are 
concrete  and  are  easily  grasped  by  the  mind, 
while  their  consequent  —  value  —  is  more  abstract, 
and  is,  as  the  definition  puts  it,  a  "  relation."  A 
relation  is  not  so  easily  seized  and  held  as  is  an 
outward  fact  or  an  attribute  of  matter.  Still  we 
cannot  get  along  at  all  without  the  term  Value. 
That  which  this  term  covers  is  central  in  all 
economical  inquiries.  It  is  the  kernel  under  the 
external  husk  of  sales.  Buyers  and  sellers  are 
often  not  so  much  interested  in  the  number  of 
sales  of  a  given  thing  as  in  the  rate  at  which  they 
1  "  Die  Lchre  von  den  Werthen." 


30  POLITICAL  ECONOMY. 

are  taking  place,  and  at  which  they  suppose  them 
likely  to  take  place  in  the  near  future.  Rate  is 
value.  "We  shall  see  pretty  soon  that  market? 
rate  often  affects  the  number  of  sales  of  a  given 
article,  and  also  that  the  number  of  sales  often 
affects  the  market-rate.  The  men  of  the  market 
accordingly  feed  on  value,  and  grow  fat  or  lean 
according  to  the  rate  at  which  sales  are  taking 
place. 

Besides  this  indispensable  word  Value  taken  in 
its  strict  scientific  sense,  as  just  defined,  it  is  con- 
venient, and  perhaps  necessary,  to  have  a  looser 
general  term  to  cover  the  mass  of  salable  things 
of  the  three  kinds  in  the  hands  of  an  individual, 
in  the  State,  in  the  Nation,  and  in  the  whole 
World.  Let  that  word  be  Property.  In  its  origi- 
nal Lathi  the  sense  of  this  word  was  wider  and 
less  definite  than  its  present  economical  sense ; 
which  is,  either  a  part  or  the  aggregate  of  things 
esteemed  salable,  whether  they  le  actually  sold  or 
not.  Value  is  only  reached  and  registered  by  a 
sale.  Property  may  be  reached  and  registered 
by  estimation.  It  is  in  the  way  of  estimation, 
aided  in  many  cases  by  actual  sales,  that  the 
tax-assessors  and  the  census-takers  proceed.  They 
intend  to  include  nothing  that  cannot  be  sold, 
and  nothing  at  a  rate  beyond  which  it  may  be 
sold ;  but  their  results,  in  the  nature  of  the  case, 
lack  the  accuracy  reached  only  by  the  sale-test. 
Property,  then,  may  be  used  in  a  sufficiently 
Scientific  sense,  to  denote  parcels  or  masses  of 


VALUE.  31 

salaT  ie  things.  The  adjectives  valuable  and  sala- 
ble may  be  used  as  synonymous,  although  the 
nouns  Value  and  Property  are  not  synonymous , 
but  the  two  nouns  together,  each  with  its  definite 
meaning,  relieve  us  completely  from  any  need  to 
use  technically  the  old  and  poor  word  "  wealth." 

It  is  indeed  true,  that  the  word  value  is  often 
used  in  another  than  the  economical  sense,  as 
when  we  speak  of  the  value  of  a  good  example, 
or  the  value  of  practical  religion  to  any  commu- 
nity. JH  such  connections,  the  word  is  used  in  a 
moral  St?nse,  which  is  not  likely  to  be  confounded 
\vith  its  scientific  sense.  Political  economy  foj 
no  occasion  whatever  to  use  the  word  in  any  other 
than  the  scientific  sense,  ana  so  no  confusion  from 
this  source  need  be  apprehended.  Adam  Smith, 
who  himself  calls  attention  to  the  distinction 
between  "  value  in  use  and  value  in  exchange," 
in  fact  confuses  the  two  senses,  as  has  almost 
everybody  else  who  has  tried  to  use  the  word 
"  wealth "  in  a  technical  sense ;  but  there  is  no 
need  of  this,  since  our  science  has  nothing  to  do 
with  "value -in  use,"  except  to  distinguish  it 
sharply  from  value  proper,  that  is,  "  value  in 
exchange." 

If  language  were  rich  enough  to  give  a  sepa- 
rate word  for  each  separate  sense,  a  complaint 
might  justly  be  raised  against  the  economists  for 
taking  as  their  foundation-word  a  word  suscep- 
tible of  another  meaning  than  theirs ;  but,  fortu- 
nately, the  poverty  of  language  is  accompanied 


POLITICAL  ECONOMY. 

by  no  practical  difficulty  in  this  case ;  for,  if  any 
one  gains  a  firm  conception  of  what  value  is  in 
the  strict  sense,  he  will  not  be  troubled  at  all 
by  the  fact  that  some  people  use  the  word  in  a 
loose  sense,  any  more  than  the  banker  is  troubled 
in  his  use  of  the  word  "  redemption  "  by  the  fact 
that  the  clergyman  uses  the  same  word  in  a  very 
different  sense.  In  this  book,  only  one  kind  of 
value  will  be  recognized  or  spoken  of.  If  there 
be  occasion,  as  there  will  be,  to  refer  to  what 
Smith  calls  "  value  in  use,"  the  word  utility  will 
always  be  employed  to  designate  that.  Even  the 
adjective  "intrinsic,"  that  is  sometimes  applied 
to  the  value  of  the  precious  metals,  will  be  avoid- 
ed as  unnecessary  and  confusing.  Value  is  value, 
and  there  is  only  one  kind  of  it,  and  we  must  now 
get  a  clear  and  sharp  conception,  which  we  shall 
never  need  to  alter,  of  what  it  is,  how  it  arises, 
and  the  causes  that  vary  it. 

We  have  already  seen,  that,  in  every  case  of 
exchange,  two  desires  of  two  persons  are  met  by 
means  of  the  exchange.  But  some  of  our  desires 
are  met  without  the  necessity  of  making  any 
exchange.  Some  very  desirable  things  come  to 
us  freely.  We  pay  nothing  for  them.  For  exam- 
ple, the  air  we  breathe  costs  us  nothing,  though 
nothing  can  be  more  desirable  to  us.  So  the  sun- 
light comes  to  us  freely.  The  water  we  drink 
from  the  spring  or  brook  is  followed  by  no  demand 
for  a  return,  except  a  return  of  gratitude  to  God, 
which  is  not  an  economical  rendering.  For  the 


VALUE.  33 

most  part,  the  enjoyment  of  natural  objects,  such 
ao\  landscapes,  mountains,  lakes,  and  ocean,  conies 
to  us  freely.  The  songs  of  the  birds  and  the 
blooms  of  the  spring-time,  which  afford  a  vory 
high  pleasure  to  many,  are  gifts.  All  such  things 
as  these,  which  are  capable  of  satisfying  human 
desires,  but  which  do  not  need  to  be  paid  for,  are 
possessed  of  utility,  but  value  does  not  attach  to 
them.  Many  useful  things  can  be  had  for  noth- 
ing, but  a  valuable  thing  can  never  be  had  for 
nothing,  otherwise  it  would  not  be  valuable,  that 
is,  poised  over  against  something  else  as  a  return 
foi  it.  Utility  is  simple  capacity  to  gratify  any 
human  desire  whatsoever.  Considered  by  itself, 
and  separate  from  all  human  efforts,  it  is  always 
free.  It  is  God's  gift  to  man.  Value,  on  the 
other  hand,  is  always  connected  with  human 
efforts,  and  hence  is  never  free. 

So  far,  the  distinctlu  i  between  utility  and  value 
is  plain  enough  ;  but  there  is  a  further  point  in 
the  matter  that  requires  insight  and  carefulness. 
Utility  is  one  thing,  and  value  is  a  different  thing, 
but  utility  is  always  present  in  every  case  of  value 
also ;  that  is  to  say,  in  each  service  rendered, 
whether  it  be  a  commodity,  a  personal  service,  or 
a  claim,  nature's  gifts  play  some  part,  as  well 
imn's  exertions.  Take  the  public  singer,  as  an 
example.  Take  Mr.  Whitney,  who  sang  so  well 
Ihe  solos  at  the  opening  of  the  Centennial  Exhi- 
bition at  Philadelphia.  He  sings  in  concerts,  and 
IB  paid  roundly  for  his  service.  It  is  true,  that  he 


31  POLITICAL  ECONOMY. 

has  spent  time,  and  money,  and  hard  labor,  in  pre- 
paring himself  to  be  a  public  singer,  but  then, 
also,  nature  gave  him  a  superb  bass  voice.  His 
efforts  have  been  combined  with  original  gifts, 
and,  as  the  result  of  the  two,  he  offers  to  society 
a  service  of  great  value,  that  is,  a  service  for  which 
he  receives  large  pay.  Utility,  which  is  nature's 
contribution,  is  always  an  element  in  services,  as 
well  as  effort,  which  is  man's  contribution. 

Take  a  bushel  of  wheat.  Man  has  labored  to 
produce  it,  and  he  now  sells  it,  but  of  himself 
alone  he  never  could  have  made  it.  He  availed 
himself  by  a  series  of  efforts  of  the  provisions  of 
nature,  and  has  wheat  to  sell.  So  of  all  commod- 
ities. Furniture  is  man's  handiwork,  but  who 
furnished  the  oak  out  of  which  it  is  made?  So 
too  of  all  claims.  New  England  railroad  shares 
would  scarcely  be  valuable  at  present,  if  the 
rivers  and  brooks  had  not  been  for  ages  wearing 
passages  up  to,  and  even  over,  the  water-sheds. 
Mining  stocks  would  be  worthless  if  nature  had 
not  deposited  the  metals.  Banks  are  the  birth  of 
business,  and  business  is  the  outgrowth  of  natural 
advantages,  and  natural  advantages  are  made  use 
of  by  far-sighted  and  laborious  men.  Thus  utility 
is  the  basis  on  which  man  works  for  the  creation 
of  value.  The  two  bocome,  as  it  were,  com- 
mingled. All  will  allow  at  once  that  utility  by 
itself  is  gratuitous :  does  it  cease  to  be  gratuitous 
after  it  has  been  united  with  the  onerous  efforts  of 
men?  Does  the  maker  of  the  oaken  chair,  for 


VALUE.  35 

example,  charge  so  much  for  the  efforts  of  the 
men,  who  felled  the  tree,  sawed  the  plank,  carved 
the  wood,  finished  the  chair,  and  so  much  addi- 
tional for  the  original  qualities  of  the  oak  ? 

This  is  a  nice  question.  Political  Economy 
asks  and  answers  no  more  delicate  and  difficult 
question  than  this.  The  example  of  the  oak  chair 
will  answer,  perhaps,  as  well  as  any  other  to  dis- 
play the  principle  that  underlies  all  such  cases. 
If  there  were  but  one  oak  tree,  or  a  few,  and  if 
the  durable  and  other  excellent  qualities  of  oak 
were  well  known,  and  oak  chairs  consequently 
were  strongly  desired  in  the  community,  I  know 
of  no  economical  force  that  would  prevent  the 
maker  from  realizing  on  his  chairs  a  value  out  of 
all  proportion  to  the  onerous  efforts  involved  in 
simply  making  them  and  bringing  them  to  market. 
He  might  claim  and  gain  something  on  the  strength 
of  what  nature  had  done  for  the  oak  wood.  There 
would  be  no  competitor  to  offer  chairs  like  his  for 
a  fair  reward  of  the  onerous  human  efforts  involved. 
His  offered  service  is  unique.  There  are  no  other 
chairs  like  his.  In  that  case,  and  in  all  similar 
cases,  no  market-rate  is  possible.  Competition, 
which  is  the  offer  of  a  similar  service,  has  no  play. 
The  return  service  demanded  and  received  may 
bo  such  as  to  imply  both  compensation  for  the 
human  effort  and  for  an  original  gift  of  nature. 
It  is  true  that  the  qualities  of  the  oak  cost  nothing 
to  the  maker  of  the  chair,  but  he  has  become  pro- 
prietor of  those  qualities,  and  there  is  nothing  to 


36  POLITICAL  ECONOMY. 

hinder  him  from  asking  something,  and,  so  far  an 
I  can  see,  nothing  to  hinder  him  from  getting 
something,  on  the  ground  of  these  gratuitous 
qualities. 

'  So  it  may  be  with  a  horse  of  very  extraordinary 
speed,  which  it  has  cost  no  more  to  rear  and  train 
than  other  horses,  which  will  fetch  much  less  on 
Bale.  So  it  may  be  with  any  other  unique  prod- 
ucts, that  happen  to  be  in  strong  demand.  The 
only  practical  limit  on  the  return  service  rendered 
for  such  products  is  the  willingness  of  the  pur- 
chaser to  pay,  rather  than  forego  the  possession 
of  the  product.  The  principle  is  that  of  the 
auction-room  rather  than  that  of  the  market-place. 
Such  products  virtually  go  to  the  highest  bidder, 
without  any  nice  inquiries  as  to  cost,  or  whether 
a  free  gift  of  nature  is  not  influencing  that  which 
should  only  be  influenced  by  the  efforts  of  men. 

It  is  very  plain,  however,  that  such  cases  are 
relatively  few  and  exceptional.  As  a  matter  of 
fact,  there  are  a  good  many  oak  trees  in  a  good 
many  countries,  and  the  unreasonable  demand  of 
any  vender  of  oak  clrairs  is  met  at  once  by  the 
assertion  that  similar  chairs  can  be  had  elsewhere 
of  other  venders  for  a  less  return.  As  a  matter 
of  fact,  competition  has  play  in  respect  to  the 
great  mass  of  all  things  bought  and  sold,  and 
tends  constantly  and  effectually  to  crowd  down 
the  value  of  all  things  sold  to  the  point  at  which 
a  fair  compensation  is  given  for  all  human  efforts 
expended,  and  nothing  more.  It  is  evident,  that 


VALUE.  37 

God  never  intended  that  His  free  gifts  to  mankind 
should  be  peddled  out  by  chance  proprietors  for 
a  personal  reward.  He  has  ordered  it  so  through 
the  very  liberality  of  His  bounty,  that  men  can- 
not sell  His  gifts.  The  cupidity  of  one  anxious 
to  do  this  is  thwarted  by  the  readiness  of  others 
to  dispose  of  a  similar  product  for  a  reasonable 
compensation,  that  is,  a  compensation  graduated 
to  the  actual  human  efforts  expended  on  it.  As 
a  rule,  therefore,  while  the  utility  of  nature  is 
always  present  as  a  part  of  that  combined  utility 
by  which  a  service  offered  is  fitted  to  meet  some 
desire  of  the  purchaser,  and  to  call  out  from  him 
a  return  service,  it  does  not  influence  that  return 
service  to  make  it  greater.  It  is  eliminated  by 
the  action  of  competition  from  all  effect  upon 
value. 

This  is  a  point  of  much  importance,  as  we  shall 
see  more  fully  when  we  come  to  the  value  of  land 
and  of  its  products.  The  reason  why  that  portion 
of  the  utility  of  any  service  that  is  due  to  the 
efforts  of  men  cannot  be  eliminated  from  influence 
011  value  is,  that  the  efforts  are  onerous,  they  will 
not  bo  put  forth  except  in  view  of  a  reward,  and 
if  a  suitable  reward  does  not  come,  the  efforts 
themselves  will  cease.  Value,  then,  as  a  general 
rule,  and  almost  universally,  has  its  origin,  not  in 
what  God  lias  done,  but  in  what  men  have  done  ; 
and  the  value  tends  perpetually  to  be  proportioned 
to  the  onerous  efforts  that  have  been  put  forth  in 
connection  with  any  service,  provided  only  thera 


POLITICAL  ECONOMY. 

oe  a  constant  desire  for  such  a  service  accom« 
panied  by  an  ability  to  remunerate  it. 

There  is  another  reason  less  effective  than  com- 
petition, yet  co-operating  with  it,  why  value  hesi- 
tates to  rise  above  the  point  that  just  offers 
compensation  for  the  onerous  elements  in  it,  leav- 
irg  no  margin  for  the  gratuitous  elements,  and 
that  is,  that  the  demand  for  any  service  is  apt  to 
slasken  when  a  larger  return  is  demanded,  and 
is  .opt  to  quicken  when  a  smaller  return  is  de- 
manded ;  so  that,  self-interest,  a  desire  to  dispose 
of  one's  services  in  a  brisk  market,  leads  him  to 
disregard  in  his  demand  what  has  cost  him  nothing, 
that  so  he  may  the  more  readily  get  his  pay  for 
what  has  been  onerous  in  the  premises.  We  con- 
clude, then,  in  answer  to  the  main  question,  that 
very  little  additional  return  is  likely  to  be  secured 
on  the  strength  of  original  and  gratuitous  quali- 
ties. 

I  believe  that  it  is  already  growing  clear  to  my 
readers,  even  before  I  have  formally  broached  the 
point,  that  value  is  not  a  quality  of  any  one  thing, 
but  a  relation  subsisting  between  two  things.  It  is, 
as  the  definition  gives  it,  a  relation  of  mutual  pur- 
chase. Just  before  beginning  to  write  this  para- 
graph, some  ten  minutes  ago,  I  bought  a  bunch  of 
tacks  and  paid  eight  cents  for  them.  The  tacks 
have  certain  qualities  of  their  own,  that  any  one 
can  ascartain  by  merely  examining  them.  Their 
material  is  iron,  they  are  about  half  an  inch  long, 
they  are  pointed  at  one  end  a  id  flattened  at  the 


VALUE.  89 

rt  her,  and  tney  are  so  made  as  to  drive  easily 
through  a  cprpet  into  a  floor,  holding  down  the 
carpet  above  and  inhering  in  the  floor  below. 
These  qualiies  of  the  tacks,  and  many  more, 
may  be  learned  by  a  simple  observation  of  them  . 
but  the  vali  e  of  the  tacks  cannot  be  learned  by  an 
observation  of  them,  for  the  reason  that  the  value 
is  not  a  quolity  of  the  tacks.  No  amount  of  study 
put  upon  the  tacks  themselves,  no  analysis  of 
them,  not  even  a  complete  account  of  their  trans- 
formations and  travels  from  the  ore  to  the  store, 
could  ever  reach  the  value  of  those  tacks.  Before 
it  could  be  asserted  that  the  tacks  are  worth  eight 
cents,  somebody  must  not  only  have  made  and 
transported  them  in  the  hope  of  getting  something 
for  them,  but  somebody  else  must  also  have 
desired  the  tacks,  have  estimated  them  in  his 
own  mind  relatively  to  eight  cents  and  preferred 
the  tacks  to  the  cents,  and  have  given  the  cents 
for  the  tacks,  the  merchant  meantime  preferring 
the  cents  to  the  tacks  and  accepting  them  in  pay 
for  the  tacks.  Then,  and  not  before,  when  some- 
body has  given  eight  cents  for  the  tacks,  can  the 
tacks  be  said  to  be  worth  eight  cents.  The  mer- 
chant  may  have  reckoned  them  at  that,  nay  have 
expected  that  they  would  fetch  that,  but  could 
not  say  that  they  were  worth  that  till  the 
exchange  was  consummated. 

Value,  strictly  speaking,  begins  and  ends  in  a 
mutual  action  of  two  persons,  not  in  their  mutual 
•Je^es  alone,  nor  in  their  mutual  efforts  alone  as 


40  POLITICAL  ECONOMY. 

represented  in  their  respective  services,  though  all 
these  play  a  part  preparatory  to  the  realization  of 
value.  Value  and  the  amount  of  value  are  the 
same  thing.  The  value  of  any  service  is  that 
other  service  that  has  just  been  exchanged  for  it. 
What  is  the  value  of  the  tacks?  Eight  cents. 
What  is  the  value  of  eight  cents  in  this  case  ? 
The  bunch  of  tacks.  It  is  just  as  true,  and  just  as 
important,  to  say  that  the  cents  are  worth  the 
tacks,  as  to  say  that  the  tacks  are  worth  the  cents. 
In  every  case  of  value,  one  service  purchases  the 
other  service ;  and  the  only  proper  expression  of 
the  value  of  any  thing  is  the  other  thing  that  is 
exchanged  against  it.  As  Mr.  Macleod  has  well 
said,  "  The  value  of  any  economic  quantity  is  some 
other  economic  quantity  for  which  the  first  will 
exchange."  The  value  of  any  specific  service 
whatever  is  that  other  specific  service  whatever 
which  the  first  will  buy.  But  we  need  a  scientific 
answer  to  the  question,  What  is  value  ?  as  well  as 
to  the  question,  What  is  the  value  of  any  specific 
service  ?  To  this  question,  the  definition  of  value 
already  given  is  the  right  answer.  I  believe  that 
it  is  a  perfect  answer.  I  think  it  is  the  only 
answer  ever  given,  that  is  at  the  same  time  sim- 
ple and  scientifically  complete.  VALUE  is  THE 

RELATION  OF  MUTUAL  PURCHASE  ESTABLISHED 
BETWEEN  TWO  SERVICES  BY  THEIR  EXCHANGE. 

I  hope  that  my  readers  will  not  be  discouraged 
at  all,  because  they  find  this  one  difficulty  at  the 
outset  of  this  science,  namely,  that  they  must 


VALUE.  41 

always  in  all  discussions  about  value  think  of  two 
things,  and  two  things  in -a  relation  with  each 
other.  Things  in  relation  are  not  so  easily  con- 
ceived of  and  held  in  the  mind  as  things  by  them- 
selves. One  thing,  as  a  horse,  is  easily  thought  of, 
and  its  qualities  easily  discovered  and  discussed. 
But  value  has  no  existence  in  connection  with  one 
thing,  or  one  person ;  and  hence,  it  is  a  little  hard 
at  first  to  accustom  the  mind  to  hold  steadily 
before  it  two  things,  two  services,  in  a  relation 
of  mutual  purchase,  especially  when  one  or  both 
of  the  services  are  changing  in  their  desirability, 
or  difficulty  of  attainment.  This  obstacle  is  in- 
herent in  the  very  nature  of  the  subject.  It  never 
can  be  obviated,  of  course.  But  the  mind  can  be 
gradually  led  up  to  it,  can  be  enabled  to  see  com- 
pletely around  it,  and  in  a  little  time  can  become 
so  accustomed  to  it,  that  it  shall  cease  to  be  any 
practical  difficulty  at  all.  Whoever  will  take 
pains  to  overmaster  this  at  the  beginning,  to  gain 
clearly  and  hold  firmly  the  fundamental  idea  of 
value,  will  thereafter  take  positive  pleasure  in  all 
economical  discussions  however  elaborate ;  and 
no  one  must  be  allowed  to  suppose  that  value  is 
the  only  subject  that  begins  and  ends  with  a  rela- 
tion. Marriage  is  a  relation.  A  pastorate  is  a 
relation.  Government  itself  is  a  relation.  All 
Attempts  to  study  value  comprehensively,  that 
have  regarded  it  as  a  quality  of  objects,  rather 
than  a  relation  of  services,  have  partially  and 
necessarily  failed. 


42  POLITICAL,  ECONOMY. 

It  follows  from  all  that  has  been  said,  that  value 
is  not  an  attribute  of  matter,  or  of  any  form  of 
matter.  When  commodities  are  offered  for  sale,  it 
is  indeed  some  material  thing  that  is  proposed  to 
be  rendered;  and  as  the  commerce  of  the  world 
is  largely  in  commodities,  men  came  naturally  Ic 
think  that  value  somehow  inheres  in  matter,  that 
value  resides  in  material  forms  as  material.  This 
is  a  great  mistake,  as  I  will  proceed  to  show.  1 
notice  in  the  paper  to-day,  that  silver  is  quoted  in 
the  London  market  as  selling  at  511  pence  per 
ounce.  Silver  usually  sells  in  that  market  at  about 
60  pence  per  ounce.  But  an  ounce  of  pure  silver, 
so  far  as  matter  is  concerned,  is  the  same  thing 
year  in  and  year  out,  century  in  and  century  out. 
Its  weight  is  the  same,  its  specific  gravity  is  the 
same,  all  its  chemical  and  visible  properties  are  the 
same.  If  then,  value  be  an  attribute  of  matter, 
the  value  of  silver  Dught  to  be  constantly  the 
same.  But  it  is  not  the  same,  either  as  compared 
with  gold,  as  in  the  given  case,  or  as  compared 
with  other  things.  Just  now,  silver  is  very  cheap 
all  over  the  world,  owing  partly  to  the  fertility  of 
the  mines,  and  partly  to  the  fact  that  some  leading 
nations  have  changed  their  money-standard  from 
silver  to  gold,  and  have  consequently  silver  to 
sell,  which  lowers  vhe  value  of  silver  in  accord- 
ance with  a  principle  soon  to  be  explained.  Cir- 
cumstances may  be  easily  supposed,  and  have 
often  occurred,  under  which  an  ounce  of  silver 
would  fetch  nothing  at  all.  During  the  plague  iii 


VALUE.  43 

fxmdon,  in  1665,  according  to  the  description  of 
Daniel  Defoe,  it  would  go  hard  to  sell  an  ounce  of 
silver,  or  even  things  ordinarily  much  more  valua- 
ble than  that. 

What  is  true  of  silver,  is  just  as  true  of  gold, 
and  still  more  true  of  most  other  material  com- 
modities. A  sudden  change  in  the  fashion,  for 
example,  will  frequently  take  away  at  a  stroke 
one-half  the  value  of  goods,  that  were  fashionable 
but  are  so  no  longer.  The  matter  is  all  there, 
and  the  form  of  the  matter  is  all  there,  but  the 
value  is  one-half  escaped.  If  value  be  so  loosely 
connected  with  matter  even  in  commodities, 
which  always  have  a  basis  of  matter,  how 
almost  independent  of  mat^r  must  it  be  in  the 
second  and  third  classes  o1'  salable  things,  namely, 
in  personal  services  and  claims,  which  are  only 
remotely  related  to  matter,  or  not  at  all !  Concert 
tickets,  for  example,  for  which  five  dollars  apiece 
are  eagerly  paid,  or  the  good-will  of  a  business, 
which  is  something  still  more  intangible,  have 
little  or  nothing  to  dp  with  matter,  and  show  that 
persons  with  their  various  capacities  and  changing 
choices  are  quite  as  much  a  factor  in  economical 
discussions  as  dead  matter  and  its  forms. 

We  must  now  trace  the  rise  of  value  as  it  comes 
before  us  practically  in  every-day  life.  Animals 
do  not  exchange  ;  there  is  no  evidence  that  angels 
do ;  but  men  have  always  been  exchangers,  are 
now,  and  always  will  be ;  and  we  can  see  that 
value  has  its  birthplace  in  the  DESIRES  of  MEN, 


44  POLITICAL  ECONOMY. 

Some  of  the  natural  and  acquired  desires  of  all 
persons  are  satisfied  through  the  bounty  of  Nature, 
and  others  of  them  are  satisfied  through  the  gifts 
of  friends,  but  there  are  still  others  of  them  that 
can  only  be  satisfied  through  exchanges.  It  is 
the  desire  that  first  points  to  the  exchange.  Clearly, 
if  a  person  does  not  desire  something,  he  will  not 
buy  it,  that  is,  render  something  else  in  exchange 
for  it.  If  his  desire  for  it  be  feeble,  he  will  be 
willing  to  render  but  little  in  exchange  for  it ;  if 
his  desire  for  it  be  strong,  and  not  counterbalanced 
by  the  desire  for  something  incompatible  with  his 
obtaining  it,  he  will  be  willing  to  render  much  in 
exchange  for  it ;  if  his  desire  for  it  cease,  the  ex- 
change will  certainly  not  take  place.  This  play 
of  human  desires,  out  of  which  value  takes  its 
rise  in  every  case,  makes  it  needful  to  one,  who 
would  be  successful  in  offering  his  services  to 
society,  to  study  human  nature  well,  to  observe 
the  current  of  desires  in  the  line  of  his  trade,  to 
anticipate  so  far  as  possible  the  changes  in  these 
desires,  and  to.  adapt  his  services,  whether  they  be 
mediated  through  commodities  or  not,  both  to 
the  present  and  to  the  prospective  desires  of  his 
customers. 

Exchange  affords  abundant  opportunity  for  the 
exercise  of  intellectual  powers.  It  is  no  dead 
j.evel  of  sluggish  uniformity.  It  is  a  sea  with 
currents  and  tides  and  waves.  Observation, 
adaptation,  invention,  caution,  enterprise,  and 
many  other  high  qualities,  have  room  and  verge 


VALUE.  45 

enough  in  the  attempt  to  meet  at  the  right  timo 
and  in  the  right  measure  these  varying  desires  of 
various  men.  Some  classes  of  desires,  such  as 
those  for  food,  for  houses,  for  the  education  of 
one's  children,  are  steadier,  and  hence  can  be 
better  calculated  upon,  than  other  classes  of  de- 
sires, such,  for  example,  as  those  of  clothing,  of 
ornamentation  of  all  kinds,  of  equipage,  and  so  on, 
As  society  advances,  the  desires  of  men  that  can 
be  met  through  exchange  become  more  numerous 
and  delicate,  and  ten  thousand  services  are  now 
offered  and  accepted  that  were  never  thought  of 
in  the  days  of  old.  Moreover,  the  desires  of  men 
are  of  such  a  nature  —  so  capable  of  increase  in 
number  and  degree  —  that  there  never  can  be  a 
general  glut  of  services  offered,  because  all  the 
desires  of  all  men  never  can  be  fully  met.  Ex- 
changes, therefore,  can  go  on  without  ever  a  fear 
that  the  ultimate  goal  will  be  reached.  A  partial 
glut  of  services  there  may  be,  that  is  to  say,  cer- 
tain services  of  a  certain  kind  may  be  offered  at  a 
certain  time  and  place  more  than  sufficient  to 
meet  the  desires  of  the  men  then  and  there  for 
such  services.  This  often  happens. 

The  offer  of  print-goods  in  this  country  at  pres- 
ent Is  more  than  sufficient  to  meet  the  desires  of 
our  people  for  this  class  of  goods,  at  least,  more 
.than  sufficient  to  call  out  from  them  in  return 
remuneiative  services ;  but  a  vent  for  our  prints  is 
found  in  foreign  countries  nevertheless.  A  mis- 
calculation upon  desires  is  possible ;  but  an  over- 


46  POLITICAL  ECONOMY. 

supply  for  all  the  desires  of  all  men  everywhere  is 
impossible ;  and  consequently,  value,  which  has  its 
starting-place  in  these  desires,  great  as  is  the  part 
it  plays  at  present,  is  destined  to  play  a  greater 
and  still  greater  part  in  the  future.  Wherever, 
and  so  long  as,  there  is  a  desire  in  a  human  breast 
that  can  be  met  through  some  exchange  with  an- 
other person,  there,  and  so  long,  value  is  possible, 
and  is  likely  to  be  realized. 

It  will  not  be  realized,  however,  unless  somebody 
puts  forth  an  EFFORT  to  gratify  that  desire.  Mere 
effort  in  itself,  mere  work,  mere  exertion  of  muscle 
or  mind,  will  not  issue  in  value,  any  more  than 
the  mere  indulgence  of  desires  will  issue  in  value. 
"  If  wishes  were  horses,  beggars  might  ride."  It 
is  the  effort  adapted  to  satisfy  the  desire  of  an- 
other person,  the  effort  put  forth  for  that  purpose, 
and  accepted  to  that  end  by  that  person  by  his 
rendering  to  the  first  a  corresponding  effort 
adopted  to  gratify  his  desire,  that  issues  in  value. 
Value  is  the  offspring  of  the  marriage  of  certain 
efforts  with  certain  desires.  A  great  many  efforts 
of  all  men,  just  as  a  great  many  desires  of  all 
men,  come  forth  without  any  reference  to  the 
desires  of  others  in  the  one  case,  or  to  the  efforts 
of  others  in  the  other  case.  Many  efforts  are  put 
forth  for  personal  gratification  merely,  as  when  a 
musician  plays  for  his  own  amusement,  or  that  of 
his  friends.  Other  efforts  are  constantly  put 
forth,  that  were  expected  to  issue  in  value,  but 
do  not,  because  there  was  a  miscalculation  upon 


VALUE.  47 

the  desires  to  be  gratified  through  such  efforts. 
For  example,  some  railroads  are  built  tbat  pay  no 
dividends,  because  there  is  less  freight  and  less 
travel  than  was  expected. 

Still,  when  one  looks  out  upon  society,  the  mosf 
striking  thing  about  it  is,  the  assid"  ity  and  success 
with  which  efforts  of  all  sorts  aie  put  forth  by 
each  sort  of  people  to  meet  the  desires  and  ex- 
change against  the  efforts  of  other  sorts  of  people. 
Society  is  one  hive  of  buyers  and  sellers.  Almost 
everybody,  paupers  and  prisoners  excepted,  brings 
something  to  the  market,  and  carries  something 
off.  To  be  successful,  efforts  must  be  skilful ;  in 
order  to  become  skilful,  persons  must  devote 
themselves  to  one  employment,  or  at  least  to  very 
few;  hence,  the  diversity  of  avocations,  what  is 
called  "  the  division  of  labor ; "  hence,  also,  by 
concentration  of  attention  and  constant  practice, 
men  come  to  be  able  to  offer  skilled  services,  each 
along  his  own  line ;  these  services  come  to  be 
desired  by  those,  whose  attention  and  practice 
have  been  called  in  other  directions,  and  who 
consequently  can  be  better  served  in  these  matters 
than  they  can  serve  themselves,  and  who,  in  turn, 
in  consequence  of  their  own  training,  can  render 
better  services  to  the  first  in  other  matters;  so 
that,  through  skilled  efforts,  all  adapted  to  gratify 
the  desires  of  somebody,  exchanges  are  multiplied, 
value  is  realized,  and  the  happiness  of  mankind 
immeasurably  augmented. 

It  will  uow  be  plain  to  my  readers,  —  and  the 


48  ,         POLITICAL  ECONOMY. 

point  is  very  important,  —  that  all  value,  through 
mutual  desires  and  mutual  efforts,  proceeds  upon  a 
diversity  of  advantage  as  between  different  men  in 
different  respects.  For  example,  there  are  at  this 
moment  three  men  engaged  in  painting  the  exterior 
of  my  house,  and  I  am  to  pay  them  for  their  service 
out  of  the  proceeds  of  my  service  as  a  public 
teacher.  If  they  could  teach  as  well  as  I  can,  and 
I  could  paint  as  well  as  they  can,  it  is  perfectly 
certain  that  they  would  not  now  b§  painting  for  me. 
I  have  an  advantage  over  them  as  a  teacher,  because 
I  have  devoted  myself  for  many  years  to  that  art, 
have  in  consequence  acquired  a  certain  skill  in  it, 
and  am  able  to  demand  for  my  services  a  reasona- 
ble salary ;  on  the  other  hand,  they  have  an  ad- 
vantage over  me  as  painters,  because  it  is  their 
trade.  They  can  paint  better  than  I  can;  and, 
therefore,  I  hire  them  to  paint  my  house ;  and  I 
rely  upon  another  exchange,  namely,  the  one  I 
make  with  my  employers,  to  obtain  the  means  of 
completing  this  exchange,  that  is,  to  pay  my  paint- 
ers. The  success  of  one  exchange  is  always  a 
path  to  other  successful  exchanges.  Now,  it  is  no 
disadvantage  to  me  that  they  have  an  advantage 
over  me  as  painters,  and  it  is  no  disadvantage  to 
them  that  I  have  an  advantage  over  them  as  a 
teacher ;  on  the  contrary,  the  more  they  surpass 
me  as  painters,  the  better  for  me,  —  I  get  a  better 
service ;  and  the  more  I  surpass  them  as  a  teacher, 
the  better  for  them,  —  I  am  more  likely  to  ex- 
change with  them,  because  I  am  thereby  better 


VALUE.  49 

able  to  pay  them  for  their  service.  From  thia 
example,  which  is  a  sample  in  this  respect  of  all 
exchanges,  we  get  this  principle  :  —  Tht  greater  the 
diversity  of  relative  advantage  as  between  the  parties^ 
the  more  profitable  do  exchanges  become. 

This  principle  may  be  illustrated  arithmetically. 
Suppose  a  shoemaker  has  an  efficiency  in  his  own 
trade  which  we  will  call  6,  which  has  not  hereto- 
fore been  increased,  because  he  has  also  made  his 
own  and  his  children's  clothes,  having  an  efficiency 
in  that  subordinate  trade  which  we  will  call  5. 
Suppose  also  in  the  same  community  a  tailor,  who 
can  make  clothes  with  an  efficiency  of  6,  but  who, 
instead  of  exchanging  with  the  shoemaker,  has 
thus  far  made  his  own  and  his  children's  shoes 
with  an  ability  of  5.  As  shoemaker  and  tailor, 
there  is  a  diversity  of  advantage  between  them  of 
2,  sufficient  perhaps  to  justify  an  exchange,  while 
it  is  certain  that  there  could  be  no  exchange 
except  for  this  diversity,  such  as  it  is.  Suppose 
now,  that  each,  under  the  encouragement  of  pro- 
spective exchanges,  devotes  himself  wholly  to  his 
own  trade,  and,  by  concentrated  attention  and 
constant  practice  and  possible  inventions,  carries 
up  his  efficiency  to  15,  the  ability  of  each  in  the 
trade  of  the  other  remaining,  as  before,  at  5. 
Now,  when  they  come  to  exchange,  the  diversity 
of  advantage  between  them  is  20  instead  of  2. 
The  motives  for  an  exchange,  and  the  gains  of  an 
exchange,  are  ten  times  greater  than  they  were 
before.  Not  only  can  they  serve  each  other  a 


50  POLITICAL   ECONOMY. 

great  deal  better  than  before,  but  they  are  now  in 
position,  owing  to  their  increased  skill,  and  the 
new  rapidity  with  which  they  can  turn  off  work, 
to  offer  their  services  to  many  more  parties  than 
before,  who  will  now  share  in  the  benefit,  and 
who,  if,  in  the  mean  time,  they  have  been  acting 
similarly,  will  in  turn  confer  a  new  benefit  upon 
these. 

The  result  of  a  greater  diversity  of  relative 
advantage  as  between  exchangers,  accordingly,  is, 
that  the  quality  of  the  services  is  improved,  and 
also,  that  the  number  of  possible  services  is  multi- 
plied. In  the  light  of  this  principle,  how  petty  is 
the  jealousy  that  pines  over  the  superior  eminence 
of  any  individual  in  his  industrial  or  intellectual 
pursuits  I  The  higher  he  has  carried  his  profi- 
ciency in  his  own  art,  the  better  and  the  more 
services  he  can  proffer,  and  all  who  come  into 
relations  of  exchange  with  him  share  in  the  profit 
of  his  superiority  ;  and,  if  they  will  only  be  stimu- 
lated by  his  success  to  carry  their  own  advantage 
over  him  in  their  art  to  the  highest  point,  the 
profit  then  becomes  mutual  and  the  highest  possi- 
ble. Exchange  rejoices  in  all  excellence  in  any 
direction,  and  especially  in  excellence  in  all  direc 
tions,  because  thereby  its  gains  become  larger  and 
more  universal. 

Even  if  others  in  the  community  stupidly  hold 
on  to  old  methods,  when  improvements  might  be 
made,  they  are  nevertheless  benefited  by  the  enter- 
prise of  any  one  who  pushes  on  improvements  is 


•VALUE.  51 

his  own  craft,  unless,  indeed,  he  practises  the 
same  occupation  with  themselves,  in  which  case 
he  will  draw  away  some  of  their  business  from 
them,  and,  so  far,  harm  them.  Nobody  can  justly 
pity  them,  however ;  their  loss  results  from  their 
own  want  of  spirit.  Our  former  supposition  a 
little  modified  will  show  just  how  the  principle 
works  in  practice.  The  shoemaker,  not  encour- 
aged by  a  corresponding  vigor  on  the  part  of  the 
tailor,  nevertheless  carries  up  his  own  efficiency 
to  10,  his  ability  in  making  clothes  and  the  tailor's 
ability  in  both  trades  remaining  as  before.  If  the 
two  exchange,  there  is  now  an  aggregate  advan- 
tage of  6  to  be  divided  between  them.  The 
exchange  is  three  times  as  profitable  as  it  was  at 
first,  owing  to  the  progress  of  only  one  of  the 
parties.  The  other  should  have  kept  up.  If  he 
had  to  the  same  degree,  the  exchange  would  have 
been  five  times  as  profitable  as  at  first.  The  prac- 
tical ir.ference  from  this  is,  that  everj'body,  who 
improves  his  capacity  in  his  own  avocation,  bene- 
fits his  fellow-men,  as  well  as  himself;  although 
the  highest  possible  benefits  of  exchange  are  condi- 
tioned upon  improvements  going  on  among  all  the 
exchangers.  If  there  is  no  4iversity  °f  relative 
advantage,  there  is  no  motive  for  any  exchange, 
and  of  course  no  exchange ;  if  there  is  great 
diversity,  there  can  be  a  very  profitable  exchange ; 
and,  therefore,  each  man  may  as  rationally  rejoice 
over  the  superiority  of  his  neighbors  to  him  in 
their  business,  as  over  his  superiority  to  them  iu 


52  POLITICAL  ECONOMY. 

his  own.  The  time  has  now  gone  by,  the  world 
has  grown  too  intelligent,  to  tolerate  the  animosl 
ties  and  restrictions  that  used  to  spring  up  in  view 
of  the  enterprise  and  progress  of  others.  Values 
grow  big  just  in  proportion  as  individuals  and 
nations  mutually  surpass  each  other  at  different 
industrial  points. 

Having  established  this  principle,  to  which  we 
shall  have  to  recur  \  further  on,  we  pass  next  to 
look  at  the  mutual  ESTIMATES,  which  men  always 
make  before  they  trade  with  each  other.  Of 
course,  the  ground  on  which  they  trade  is  self- 
interest.  No  other  motive  than  self-interest  is 
appropriate  in  the  premises.  Men  often  give  from 
the  impulse  of  duty  —  they  never  trade  except 
from  self-interest.  In  the  sphere  of  morals,  "  It 
is  more  blessed  to  give  than  to  receive."  In  the 
sphere  of  exchange,  It  is  more  blessed  to  receive 
than  to  give !  It  is  no  gain  for  morality  to  dis- 
guise the  truth  that  men  trade  for  their  own 
advantage,  or  to  try  to  mingle  things  so  distinct 
and  incompatible  as  charity  and  commerce.  God 
is  indeed  the  author  of  economical  laws  just  as 
much  as  of  the  moral  laws,  although  they  are  less 
a  matter  of  express  legislation,  because  they  are 
in  a  lower  sphere  and  less  essential  to  men's 
welfare.  It  is  necessary  for  men  to  be  good,  but 
it  is  not  necessary  for  them  to  be  rich.  Besides, 
it  is  more  natural  for  men  to  trade,  than  to  fulfil 
their  moral  obligations.  Both  sets  of  laws,  the 
moral  and  the  economical,  work  together  for  the 


VALUE. 

benefit  of  mankind,  only  they  work  in  quite  differ- 
ent  ways.  Men  are  to  be  good,  and  to  do  good, 
because  they  ought  to  do  this :  men  are  to  trade 
because  it  is  for  their  advantage  to  do  so.  No  man 
was  ever  yet  under  a  moral  obligation  to  make  an 
exchange,  because,  by  the  very  definition  of  an 
exchange,  it  is  made  with  a  view  to  the  economical 
return.  As  exchangers,  men  are  under  the  moral 
laws,  because  they  are  men,  not  because  they  are 
exchangers.  Men  must  be  honest  in  all  things, 
including  exchanges,  if  they  make  them,  because 
this  is  right,  but  it  is  wholly  a  matter  of  their  own 
choice,  to  be  decided  in  view  of  self-interest, 
whether  they  make  them,  or  not.  Exchange  is  a 
sphere,  all  whose  operations  are  under  the  sur- 
veillance of  conscience  of  course,  but  it  is  not, 
and  never  was  designed  to  be,  a  sphere  of  benevo- 
lence. It  is  a  sphere  of  gain  only.  The  popular 
notions  concerning  this  point  are  so  loose,  that  it 
is  worth  while  to  clear  it  up  once  more,  although 
even  the  apostle  Paul  draws  a  sharp  distinction 
between  the  "  spiritual  things  "  and  the  "  carnal 
things." 

Now,  the  estimate  that  each  person  puts  upon 
what  he  receives  hi  an  exchange  is  greater  than 
the  estimate  he  puts  upon  what  he  renders,  other- 
wise he  would  not  render  it.  He  may  be  mis- 
taken in  the  utility  to  himself  of  what  he  receives, 
and  he  may  be  mistaken  in  what  would  be  the 
utility  to  himself  of  what  he  renders  in  case  he 
retained  it,  —  exchanges  are  sometimes  disappoint- 


54  POLITICAL  ECONOMY. 

ing  to  one  or  both  parties  owing  to  misapprehen 
sious  or  miscalculations  —  but  generally  they  are 
not.  The  mutual  estimates  prove  to  be  correct ; 
and  the  difference  between  the  estimate  of  what  is 
rendered  and  the  estimate  of  what  is  received  is 
the  measure  of  the  gain  of  the  exchange. 

These  estimates  are  mental  processes.  The 
minds  of  most  men  derive  their  chief  development 
in  connection  with  the  necessity  and  the  habit  of 
making  these  estimates.  Mercantile  sagacity  con- 
sists largely  in  the  ability  to  make  these  estimates 
quickly  arid  accurately;  and  in  times  of  general 
depression  of  business,  like  1873-1879,  when  the 
current  gains  of  exchanges  are  small,  and  when 
it  is  the  question  with  many  whether  or  not  to 
continue  their  industrial  enterprises,  this  ability  is 
what  makes-  the  difference  between  a  continuous 
success  and  an  abrupt  failure.  Shall  I  buy  it  at 
all?  What  grade  shall  I  buy?  What  quantity 
shall  I  buy  ?  What  price  can  I  afford  to  give  9 
What  price  am  I  likely  to  get  for  my  own  prod- 
uct, the  proceeds  of  which  must  pay  for  this  prod- 
uct? These  questions,  and  questions  like  these, 
enter  in  as  elements  into  the  estimates  that  inva- 
riably precede  exchanges.  The  necessity  of  asking 
and  answering  them  keeps  the  minds  of  men  on 
the  alert,  obliges  them  to  consult  sources  of  infor- 
mation, induces  them  to  read,  compels  them  to 
reflect,  stimulates  conversation,  and  in  various 
other  ways  helps  to  educate  individuals,  and  to 
keep  society  from  stagnation.  To  know  when  not 


VALUE.  55 

fco  buy,  as  well  as  when  and  where  and  how  to 
buy ;  to  learn  to  know  the  present,  and  as  fiir  as 
possible  to  anticipate  the  prospective,  purchasing- 
power  both  of  one's  own  product  about  to  be 
parted  with  and  of  another's  product  about  to  be 
received;  to  come  into  an  apparent  or  real  colli- 
sion of  interests  with  other  men,  and  hold  one's 
own  of  temper,  of  judgment,  and  of  property,  in 
the  struggle  ;  — all  this  is  a  part  of  the  good  disci- 
pline that  Exchange  offers  to  almost  all  men. 

It  is  true,  that  many  men  fail  in  this  matter  of 
making  proper  estimations,  and,  consequently, 
they  "  fail "  in  business,  or  fall  into  hopeless 
debts ;  but  it  is  nevertheless  true,  that  the  meth 
ods  of  exchange  are  in  their  nature  not  random 
but  rational ;  they  imply  in  their  groundwork  the 
intelligence  of  God,  and  in  their  practical  working 
the  intelligence  of  men ;  and  no  exchanges  are 
properly  made  except  those  preceded  by  the  delib- 
erative action  of  two  minds,  each  of  which  con- 
cludes, on  grounds  of  rational  probability,  that 
what  is  about  to  be  received  is  of  more  conse- 
quence to  the  recipient  than  what  is  about  to  be 
rendered.  This  is  enough  for  the  present  about 
esii  mates. 

The  last  element  in  this  series,  and  the  one 
pleasantest  to  discuss,  is  the  resulting  SATISFAC- 
TIONS. These  lie  in  the  region  of  .the  Sensibility, 
as  the  estimations  lie  in  the  region  of  the  Intellect. 
Desires  are  followed  by  efforts,  and  efforts  by  esti- 
mations, and  estimations  by  an  exchange,  and  the 


66  POLITICAL  ECONOMY. 

exchange  by  satisfactions  ;  and  thus  tne  Sensibili- 
ty, that  gives  rise  to  the  desires,  becomes' also  the 
seat  of  the  ultimate  satisfactions.  The  Intellect 
and  the  Will  intervene  in  their  action  between 
the  original  desire  and  the  subsequent  satisfaction. 
Thus  all  the  parts  of  our  nature  are  involved  in  a 
single  act  of  exchange  ;  and  Political  Economy, 
which  is  a  science  by  itself,  recognizes  and  rejoices 
in  all  the  other  sciences,  and  particularly  in  those 
sciences,  which,  like  itself,  find  their  culmination 
in  man.  In  the  first  detailed  commercial  transac- 
tion on  record,  which  was  the  purchase  by  Abra- 
ham l  from  the  sons  of  Heth  of  the  field  and  cave 
of  Machpelah  for  four  hundred  shekels  of  silver, 
any  one  skilled  to  read  between  the  lines  may 
easily  discover  the  evidence  of  the  satisfaction  of 
the  patriarch  through  the  copiousness  and  itera- 
tion of  the  details,  when  it  is  said,  "  the  field  and 
the  cave  which  was  therein,  and  all  the  trees  that 
were  in  the  field,  that  were  in  all  the  borders 
round  about,  were  made  sure  unto  Abraham  for  a 
possession,  in  the  presence  of  the  sons  of  Heth, 
before  all  that  went  in  at  the  gate  of  his  city." 
A  little  after,  as  if  loath  to  leave  them,  the  main 
features  of  the  bargain  are  repeated ;  —  "  And  the 
field,  and  the  cave  that  is  therein,  were  made  sure 
unto  Abraham  for  a  possession  of  a  buryicg-placc, 
by  the  sons  of  Heth."  Some  of  the  circum- 
stances of  this '  purchase  were  of  the  saddening 
sort,  —  it  was  the  purchase  of  a  tomb  and  its  envi 
i  See  Gen.  xxiiL  3-20. 


VALdE.  57 

rons  as  a  last  earthly  resting-place  for  himsd  f  and 
for  his  family,  —  but  his  satisfaction  in  the  pur- 
chase is  most  evident,  a  satisfaction  that  has  jus- 
tified itself  in  the  probably  inviolate  sacred  ness  of 
the  tomb  from  that  day  to  this,1  and  in  the  venera- 
tion with  which  Israelite,  Mussulman,  and  Chris- 
tian alike,  .even  now  draw  near  to  the  mosque  at 
Hebron. 

This  incidental  reference  to  Abraham  makes 
natural  an  additional  word  or  two  respecting  the 
alleged  fondness  of  the  Jews  for  bargains  of  all 
sorts.  If  they  be  fonder  than  other  people  are  of 
a  good  trade,  something  may  perhaps  be  said  in 
the  way  of  explanation  of  it.  The  national  trait, 
if  it  be  one,  certainly  goes  back  to  the  founder  of 
the  nation.  Long  before  the  transaction  just 
mentioned,  Abraham,  though  a  double  exile,  is 
said  to  have  departed  out  of  Egypt  "  very  rich  in 
cattle,  in  silver,  and  in  gold."  Isaac,  though  his 
life  was  quieter,  was  obviously  not  less  an  accumu- 
lator ;  for  he  "  sowed  in  that  land,  and  received 
the  same  year  a  hundred-fold,  and  the  Lord  blessed 
him,  and  the  man  waxed  great,  and  went  forward, 
and  grew  until  he  became  very  great,  for  he  had 
possession  of  flocks  and  possession  of.  herds  and 
great  store  of  servants,  and  the  Philistines  envied 
him."  Jacob  also,  the  third  in  the  line,  was  a 
consummate  trafficker,  not  to  say  trickster,  in  his 
bargains ;  and  thus  the  pitch  seems  to  have  been 

-  See  Dean  Stanley's  Lectures  on  the  Jewish  Church.  Appen- 
dix. 


58  POLITICAL  ECONOMY. 

given  by  the  patriarchs  to  the  song  sung  by  the 
Jews  ever  since.  They  have  come  honestly,  that 
is,  through  inheritance,  by  their  tendencies  to 
traffic.  Moreover,  the  disabilities  they  have  been 
.put  under  by  the  laws  of  most  European  countries, 
sunh  as  those  forbidding  Jews  to  hold  landed 
estates,  and  so  on,  (even  Magna  Charta  forbids 
the  debts  due  by  wards  to  Jews  to  bear  any  in- 
terest,) may  have  driven  them  more  to  become 
peddlers,  merchants  and  bankers,  and  thus  to 
exhibit  their  mercenary  spirit  in  a  more  conspicu- 
ous way. 

But  it  may  be  questioned,  after  all,  whether  the 
Jews  take  more  satisfaction  in  exchanges  than 
other  people.  Everybody  likes  to  trade.  The 
satisfaction  from  a  fair  bargain  is  legitimate  and 
universal.  An  intelligent  exchange  is  in  every 
case  the  gratification  of  two  human  desires.  The 
boy  with  his  new  top,  and  Vanderbilt  with  Lis 
new  steamship,  present  the  same  phenomenon  ; 
and  the  satisfaction  of  the  shopman  who  sold  tin? 
top,  and  of  the  contractor  who  furnished  the  ship, 
is  just  as  real  as  theirs.  Neither  party  to  an  ex- 
change is  more  recipient  than  the  other,  since 
they  are  both  reciprocally  recipient ;  and  neither 
hits  a  better  right  to  a  satisfaction  than  the  other, 
si  ace  both  have  parted  with  something  reciprocally 
le  is  esteemed  for  the  sake  of  receiving  something 
reciprocally  more  esteemed.  Thus  the  happiness 
of  the  world, — the  satisfaction  of  the  world's 
innumerable  desires,  —  not  to  speak  of  the  power 


VALUE.  63 

of  the  world,  and  the  progress  of  the  world,  all 
which  are  indeed  the  same  thing  in  different 
aspects  of  it,  is  constantly  and  increasingly  minis- 
tered unto  by  means  of  exchanges.  The  satisfac- 
tion is  that  for  the  sake  of  which  the  exchange  ia 
hud,  for  the  sake  of  which  it  was  prepared  for 
perhaps  years  aback,  and  in  the  realization  of 
which  it  finds  its  sole  purpose  and  end.  Tho 
present  exchange  is  for  the  present  satisfaction, 
though  to  make  ready  for  the  present  exchange 
many  men  may  have  long  been  toiling.  As 
Whittier  sings  to  the  shoemakers :  — 


•6' 


"  For  you,  along  the  Spanish  main 

A  hundred  keels  are  ploughing; 
For  you,  the  Indian  on  the  plain 

His  lasso-coil  is  throwing; 
For  you,  deep  glens  with  hemlock  dark 

The  woodman's  fire  is  lighting; 
For  you,  upon  the  oak's  gray  bark, 

The  woodman's  axe  is  smiting. 
For  you,  from  Carolina's  pine 

The  rosin-gum  is  stealing; 
For  you,  the  dark-eyed  Florentine 

Her  silken  skein  is  reeling; 
For  you,  the  dizzy  goatherd  roams 

His  rugged  Alpine  ledges; 
For  you,  round  all  her  shepherd  homes 

Bloom  England's  thorny  hedges." 

There  is  one  important  inference  to  be  drawn, 
in  passing,  from  the  general  point  last  established- 
If  satisfactions  are  the  goal  of  exchanges,  then,  to 
try  to  stop  exchanges  is  to  try  to  destroy  satisfiic- 


60  POLITICAL  ECONOMY. 

tions.  The  only  motive  that  leads  men  to  trade 
is  to  better  their  condition,  is  to  increase  the  sum 
of  their  happiness,  and  if  governments,  under  a 
mistaken  notion  of  their  functions,  undertake  to 
prohibit  trade,  or  to  burden  it  by  throwing  arti 
dual  obstacles  across  its  path,  the  effect  is  and 
must  be  from  the  nature  of  the  case  to  lessen 
human  happiness,  to  weaken  human  power,  to 
retard  human  progress.  He  is  an  enemy  to  the 
human  race,  and  flings  himself  into  the  face  of 
Providence,  who,  for  ends  of  his  own,  undertakes, 
by  means  of  the  action  of  government,  to  prevent 
exchanges  which  would  otherwise  take  place.  He 
thereby  undertakes  to  annihilate  satisfactions 
which  would  otherwise  take  place. 

The  exceptions  to  the  noble  principle  of  free 
exchanges  are  so  few  and  petty  that  one  is  almost 
ashamed  to  put  them  down  alongside  of  the  prin- 
ciple itself.  The  father,  for  example,  may  properly 
enough  restrain  his  boy  in  his  eagerness  to  engage 
in  boyish  traffic  until  his  mind  is  sufficiently 
trained  to  make  relatively  just  estimates  respecting 
the  things  to  be  bought  and  sold ;  though  a  wise 
father  will  give  his  boy  considerable  libeity  in 
his  tentative  trials  of  skill  in  bargaining,  since  he 
will  learn  skill  through  his  own  mistakes  and 
losses.  Governments  may  properly  enough  re- 
strain exchanges  whenever  it  becomes  needful  to 
do  so  in  the  interest,  first,  of  public  health;  second, 
of  public  morals ;  and  third,  of  public  revenue. 
Health,  morals,  and  revenue ;  —  these  are  all 


VALUE.  61 

higher  considerations  than  the  gains  of  individuals, 
and  the  latter  must  give  way  to  the  former.  The 
law  may  prohibit  the  selling  of  tainted  meat  for 
health's  sake,  of  obscene  publications  for  morals1 
sake,  and  of  "  crooked "  whiskey  for  revenue's 
sake  ;  but  all  these,  and  all  such  as  these,  are  but 
as  a  drop  in  the  bucket  to  the  mass  of  things 
purely  and  properly  commercial.  I  do  not  think 
of  any  other  exceptions  to  the  right  of  free  ex- 
change in  time  of  peace.  If  governments  go 
beyond  this,  and  try  to  give  commercial  reasons 
for  interfering  with  commerce,  they  go  beyond 
their  depth,  and  go  to  the  bottom.  This  point 
will  be  taken  up  again  in  the  chapter  following 
the  next.  It  is  enough  to  say  at  present,  that,  as 
exchanges  find  their  only  aim  in  human  satisfac- 
tions, the  exchanges  themselves,  with  the  slight 
exceptions  noted,  should  be  everywhere  untram- 
melled. 

We  have  now  gained  a  general  idea  of  what 
VALUE  is,  and  of  the  circumstances  under  which 
it  arises.  It  is  clear,  that  there  is  no  inherent 
quality  called  value  in  any  thing,  any  more  than 
there  is  an  inherent  quality  called  size  in  any 
thing.  Value,  like  size,  is  relative,  is  the  result  of 
a  comparison.  Can  value,  like  size,  be  measured  ? 
Is  there  any  external  standard,  by  means  of  which 
the  value  of  purchasable  things  in  general  may  be 
ascertained,  just  as  the  dimensions  of  physical 
things  may  be  ascertained  by  an  external  standard 
like  the  French  metre?  It  has  often  been  sup- 


62  POLITICAL  ECONOMY. 

posed  that  there  must  be  such  an  external  stand- 
ard, and  economists  have  expended  a  great  deal 
of  ingcn  uity  in  trying  to  find  out  what  it  is.  Mr 
Ilicardo  contended  that  the  value  of  any  thing  is 
measured  by  and  constituted  of  the  quantity  of 
labor  necessary  to  produce  or  obtain  it.  Mr.  Mal- 
thus  contended  on  the  other  hand  that  value  con- 
sibts  in  and  is  measured  by  the  quantity  of  labor 
that  the  thing  can  command  as  an  article  of  ex- 
change. Adam  Smith,  though  not  always  con- 
sistent with  himself,  seems  to  think  that  corn  is  a 
better  measure  of  general  exchange  value  than 
labor,  or  even  coin.  Mr.  Mill,  and  many  others, 
regards  the  cost  of  their  production  as  the  best 
gauge  of  the  value  of  valuable  things.  Mr.  Carey 
thinks  that  he  makes  a  great  advance  upon  this, 
when  he  affirms,  that  it  is  the  prospective  cost  of. 
their  reproduction  that  is  the  measure  of  the  value 
of  salable  things. 

All  of  these  opinions  imply  more  or  less  of  mis- 
apprehension as  to  the  nature  of  value,  both  in 
supposing  that  tangible  things  alone  have  value, 
and  that  value  is  somehow  or  other  a  quality 
wrapped  up  in  these  commodities.  Indeed,  it  is 
d  ifficult,  or  impossible,  to  use  language  that  is  free 
from  all  implications  of  this  sort.  Language  is 
formed  for  popular,  not  scientific,  use ;  and  every 
writer  is  obliged  more  or  less  to  employ  words 
that  have  already  acquired  significations,  or  at 
least,  implications,  adverse  to  a  strict  scientific 
conception.  It  is  not  strictly  accurate,  for  exam- 


VALUE.  .  63 

pie,  to  say  that  any  thing  has  value,  for  tha  t  iuv 
plies  that  value  is  a  quality  of  the  thing  itself, 
whereas  it  is  only  a  transient  relation  which  that 
thing  holds  to  other  tilings  which  it  will  buy,  and 
which  at  the  same  time  will  buy  it.  So,  also,  we 
sometimes  speak  of  value  as  purchasing-power  re- 
siding in  this  or  that.  Such  language  is  illusory, 
though  we  cannot,  perhaps,  always  avoid  using 
it.  I  promise  my  readers,  however,  that,  if  they 
will  be  both  careful  and  patient,  I  will  give  them, 
by  means  of  the  best  words  our  language  affords 
for  our  use,  not.  only  a  clear  conception  of  what 
value  is,  but  also  a  clear  conception  of  the  only 
sense  in  which  it  can  be  said  that  there  is  a  meas- 
ure of  value. 

As  the  measure  of  lengths  must  itself  have  the 
attribute  of  length,  (the  metre  is  39.37079  hiches 
long,)  and  the  measure  of  capacities  be  itself  pos- 
sessed of  capacity,  (the  litre  contains  61.02705 
cubic  inches,)  so;  clearly,  if  there  be  a  measure  of 
values,  it  must  be  some  valuable  thing.  If  value- 
is  a  relation  of  mutual  purchase,  then  the  meas- 
ure of  values  must  be  capable  of  standing  in  a 
relation  of  mutual  purchase  with  all  other  pur- 
chasable things.  If  it  pretend  to  be  a  universal 
measure  of  values,  then  it  must  be  universally 
acceptable  in  an  exchange  for  other  things.  But 
the  value  of  the  measure  of  values  must  in  any 
ease  arise  just  as  all  other  value  arises,  namely,  it 
must  be  the  object  of  desires,  the  subject  of 
efforts,  the  target  :>f  estimates,  the  cause  of  satis- 


d4  POLITICAL  ECONOMY. 

factions.  From  the  very  nature  of  value  itself  it 
is  impossible  that  there  should  be  a  perfect  meas- 
ure of  values,  inasmuch  as  the  measure,  which 
must  be  valuable,  is  subject  to  the  causes  which 
vary  more  or  less  all  other  values.  There  is  noth- 
ing, men's  desires  for  which  are  always  uniform, 
efforts  to  procure  which  are  always  equally  oner- 
ous, estimates  in  relation  to  which  are  always  the 
same,  and  satisfactions  arising  from  the  possession 
of  which  are  always  equally  great.  Therefore,  a 
perfect  measure  of  values  is  impossible  to  be 
found,  and  would  never  have  been  sought  after, 
had  the  nature  of  value  been  fully  understood. 

Much  can  be  said  in  favor  of  each  of  the  above- 
alleged  measures  as  a  kind  of  index  to  the 
probable  value  of  many  salable  things ;  that  is  to 
say,  if  it  be  known,  how  much  of  labor  a  thing 
has  cost  or  will  now  command,  how  much  of  corn 
or  coin  it  will  now  buy,  what  its  cost  of  produc- 
tion has  been  in  money,  or  what  will  be  in  money 
the  cost  of  the  reproduction  of  similar  things,  a 
sort  of  rough  guide  is  thus  obtained  to  the  power 
of  that  thing  to  purchase  things  in  general.  It  is 
in  this  sense  only  that  there  can  be  any  such  thing 
as  a  measure  of  value. 

In  the  chapter  on  Money  we  shall  have  occasion 
to  ascertain  the  important  fact,  that  gold  is  the 
best  attainable  measure  of  value  in  the  sense 
already  explained,  because  there  is  nothing  el;?e 
BO  generally  desired  by  men,  nothing  else  secured 
at  all  times  by  such  approximately  equal  efforts. 


VALUE.  65 

consequently  nothing  else  so  likely  to  be  uni- 
formly estimated  as  over  against  other  things,  and 
consequently  also  nothing  else  so  likely  to  give 
satisfaction  in  its  possession  through  its  command 
over  other  satisfactions.  To  say  that  gold  is  tha 
best  attainable  measure  of  value  is  only  to  say 
that  its  own  value  is  steadiest.  Whenever  any 
service  is  sold  for  money,  the  amount  of  money 
obtained  for  it  is  called  its  Price.  Value  and 
Pi.'ce  must  be  carefully  distinguished  in  the  mind 
of  every  student  of  Political  Economy.  The 
value  of  any' service  is  its  power  to  command,  that 
is,  to  buy,  all  other  services  ;  the  price  of  any  ser- 
vice is  its  power  to  command,  that  is,  to  buy, 
money.  There  can  be  po  general  rise  or  fall  of 
values,  because,  if  some  services  rise  in  value,  that 
means  that  other  services  for  which  these  ex- 
change have  fallen  in  value.  To  say,  for  example, 
that  horses  have  risen  in  value,  is  only  to  say  that 
they  will  buy  more  of  other  things  than  formerly, 
which  is  only  to  say  that  those  other  things  will 
buy  fewer  of  horses  than  formerly,  so  that,  if 
horses  rise,  other  things  fall  as  compared  with 
horses,  and  accordingly  a  general  rise  in  value  of 
all  things  is  a  contradiction  in  terms.  Some 
things  may  rise  in  value,  but  if  they  do,  some 
other  things  must  correspondingly  fall  in  value. 
A  fall  in  value  of  certain  things  implies  of  course 
that  certain  other  things  will  buy  more  of  the  first 
than  before,  that  is,  have  risen  in  value. 
Value  is  not  only  a  relative  term  implying  a 


G6  POLITICAL  ECONOMY, 

comparison,  but  is  also  a  general  term  imptying  a 
comparison  with  all  other  valuable  things.  The 
value  of  a  watch,  for  instance,  never  can  be  com- 
pletely stated,  because  that  would  require  a  com- 
parison of  the  watch  with  all  other  salable  things 
whatsoever,  and  a  statement  in  the  terms  of  those 
things  how  many  of  them  or  what  part  of  them 
the  watch  will  buy.  This  inconvenience,  which 
always  exists  under  the  form  of  trade  called  Bar- 
ter, is  removed  by  reducing  value  to  price.  Price 
is  the  value  of  any  thing  expressed  in  money.  By 
knowing  how  much  money  any  service  will  fetch, 
it  is  easy  to  compare  all  other  services  with  jthat. 
Money  becomes  the  standard  of  value,  to  which  all 
purchasable  things  are  referred,  and  by  means  of 
which  they  are  brought  into  easy  numerical  rela- 
tions with  each  other.  So  soon  as  it  is  ascertained 
that  the  watch  is  worth  $100,  its  relations  of  value 
to  all  other  things  whose  price  has  also  been  ascer- 
tained become  simple  enough.  Price  is  indeed 
only  a  case  under  the  class  Values,  but  practically 
it  becomes  a  very  important  thing  in  Political 
Economy,  because  the  value  of  almost  all  ex- 
changeable things  is  determined  through  price. 
So  far  as  commodities,  personal  services,  and 
claims  are  exchanged  against  each  other  directly, 
without  the  intervention  of  money  or  the  use  of 
the  denominations  of  money,  price  plays  no  part 
though  value  does,  but  these  cases  are  few  and  in- 
significant as  compared  with  the  whole. 

It  is  hardly  necessary  to  add,  that  price,  though 


VALUE.  67 

relative,  is  specific  and  not  general,  and  conse- 
quently that  there  may  be  a  general  rise  or  fall  of 
prices.  If  the  money  of  a  country  become  rela- 
tively more  abundant  than  before,  general  prices 
will  rise  in  that  country  for  reasons  already  made 
apparent;  and  when  the  money  becomes  less 
abundant,  prices  will  fall  for  corresponding  rea- 
Bons.  In  this  country,  since  1862,  the  general 
range  of  prices  has  been  high,  at  times  very 
high,  mainly  on  account  of  the  state  of  the  nation- 
al money.  Things  have  exchanged  against  each 
other  about  as  before  —  values  have  not  risen  —  but 
as  exchanged  against  money,  owing  to  the  quantity 
and  quality  of  that,  prices  have  been  high.  After 
1873  prices  fell,  partly  because  of  the  panic  of 
that  year,  and  partly  because  paper  money  became 
better  in  quality;  in  1879-1880,  prices  rose  again, 
partly  because  business  confidence  was  restored, 
and  partly  because  the  volume  of  money  was 
slowly  but  steadily  enlarged.  The  subject  of 
prices  will  be  better  understood  in  the  light  of  our 
subsequent  discussions  of  Money,  but  we  must 
now  conclude  the  direct  discussion  of  Value  by 
unfolding  the  great  law  that  underlies  it.  • 

This  law  is  commonly  and  properly  called  the 
Law  of  Demand  and  Supply.  It  is  the  most  com- 
prehensive and  beautiful  law  in  Political  Econo- 
my. We  must  first  define  our  terms.  Demand  is 
the  desire  of  purchasing  something  coupled  with  the 
power  of  purchasing  it.  The  demand  for  any  ser« 
vice  is  usually  expressed  by  the  offer  of  money 


68  POLITICAL  ECONOMY. 

wherewith  to  pay  for  it,  or  by  the  promise  express 
or  implied  to  pay  the  money  at  some  future  time, 
but  a  demand  may  be  constituted  by  the  offer  of 
any  other  exchangeable  thing  besides  money. 
Demand  expresses  the  element  of  desire  as  meas- 
urad  by  the  effort  involved  in  what  is  offered  as 
pay.  Mark  Lane,  London,  is  a  great  European 
market  for  grain.  The  demand  in  that  market  on 
any  one  day  is  constituted  by  what  is  virtually 
offered  that  day  in  pay  for  the  grain  then  and 
there  offered  for  sale.  Supply  is  any  class  of  ex- 
changeable things  offered  for  sale  against  money,  or 
other  exchangeable  thing.  In  common  commercial 
language,  the  money  or  its  equivalent  offered  in 
the  market  for  commodities,  services,  or  claims, 
constitutes  the  demand  for  them,  while  the  com- 
modities, services,  and  claims  are  a  supply  in 
reference  to  that  demand ;  but  it  must  always  be 
remembered,  that,  in  reality,  some  commodities, 
services  and  claims  are  a  demand  in  relation  to 
others,  which  thereby  become  a  supply  in  relation 
to  them.  In  other  words,  a  market  for  products 
is  products  in  market.  Money  itself  is  always 
either  a  commodity  or  a  claim ;  and  whoever  has 
salable  things  of  whichever  kind  to  dispose  of, 
need  have  no  fear  but  he  can  buy  whatever  he 
wants,  either  through  the  intervention  of  money, 
or  without  it. 

Still,  it  is  less  confusing  to  unfold  and  to  under- 
stand the  law  of  -supply  and  demand  under  the 
ordinary  commercial  terms,  and  afterwards  at  our 


VALUE.  69 

leisure  to  give  to  the  law  its  utmost  possible  gen- 
erality. This  method  will  lead  us  astray  at  no 
point.  Let  the  article  be  wheat  in  the  market  of 
Milwaukee.  There  is  much  wheat  in  stock,  and 
many  buyers  representing  many  cities  and  distant 
lands.  Let  us  first  follow  the  action  of  Demand 
as  affecting  the  value  of  the  wheat  in  stock  with- 
out reference  to  any  change  in  the  Supply  of 
wheat.  The  bu}*ers  want  wheat,  and  have  money 
to  offer  for  it ;  the  sellers  want  money,  and  have 
the  wheat  to  give  for  it.  What  now  will  deter- 
mine the  price  of  wheat  ?  The  buyers  have  a 
desire  for  wheat,  but  it  is  not  an  unlimited  desire. 
The  money  they  must  give  for  it  represents  an 
onerous  effort  already  expended.  They  begin 
their  estimates.  Some  of  them  may  desire  the 
wheat  more  than  others,  but  there  is  a  limit  be- 
yond which  no  one  of  them  will  go.  Suppose 
that  limit  to  be  80  cents  a  bushel.  The  price  can 
by  no  possibility  rise  above  that.  The  most  san- 
guine buyer  concludes  that  at  80 -f-  he  cannot  dis- 
pose of  his  wheat  with  a  profit,  and  80-f-,  there- 
fore, becomes  an  impossible  price.  At  80,  he  may 
take  some,  if  he  cannot  get  it  for  less. 

But  the  sellers  have  been  making  their  esti- 
mates, too.  Some  are  more  anxious  to  sell  than 
others,  being  in  greater  need  of  the  money,  but 
there  is  no  one  among  them  who  will  at  present 
dispose  of  his  wheat  for  less  than  70  cents  a 
bushel.  He  is  bound  to  get  as  much  more  than 
that  as  he  can,  but  lower  than  that  he  will  not  go 


70  POLITICAL  ECONOMY. 

The  wheat  represents  to  him  an  effort  already 
expended,  and  70  —  does  not  in  his  judgment 
represent  an  effort  equivalent  to  that,  and  70  — , 
accordingly,  becomes  an  impossible  price  in  that 
market  at  that  time.  Between  70  and  80  the  price 
may  fluctuate,  —  what  will  determine  the  price? 
The  competition  as  between  the  buyers  on  the  one 
Land,  and  the  competition  as  between  the  sellers 
on  the  other  hand,  will  determine  it.  Suppose  the 
first  sale  be  at  72,  a  figure  that  the  buj^ers  regard 
as  very  favorable  to  them,  and  they  show  a  readi 
ness  to  buy  largely  at  that  rate.  The  sellers  ob 
serve  their  quickness  of  offer,  and  are  prompt  to* 
take  advantage  of  it.  They  allege  that  72  is  a 
ruinous  price  for  them,  that  the  man  who  -took 
that  was  under  stress,  that  74  is  the  least  the 
market  will  bear. 

In  the  mean  time,  a  few  eager  buyers  have 
actually  given  73,  and  as  the  market  is  evidently 
rising,  and  there  is  still  a  fair  margin  of  profit  for 
the  buyers,  74  is  conceded  by  many,  and  there  are 
large  transactions  at  that  rate.  A  strong  demand 
has  raised  the  price,  and  seems  to  hold  it  steady. 
Just  then,  come  telegrams  in  cipher  to  some  of 
the  foreign  buyers,  that  wheat  has  taken  a  sharp 
turn  upward  at  Mark  Lane.  Now  is  a  chance  for 
extra  profit  even  at  74.  Demand  increases.  Sellers 
are  keen  to  read  the  thoughts  of  buyers.  The 
sellers  get  some  telegrams,  too ;  and  the  price  goes 
up  to  75.  An  increased  demand  caused  by  a 
larger  number  of  purchasers,  or  by  the  same  ILUDI- 


VALUE.  71 

her  for  some  reason  made  more  eager,  other  things 
being  equal,  increases  the  price  of  any  article  01 
service  ;  but  it  must  be  noted  also,  that  the  en- 
hanced price  in  turn  tends  to  lessen  the  demand 
by  lessening  the  number  of  those  who  will  pur- 
chase at  the  higher  rate ;  so  that,  each  rise  of 
price  from  enhanced  demand  tends  to  check  itself 
by  cutting  off  demand.  More  men  will  purchase 
wheat  in  Milwaukee  at  73  than  at  75. 

On  the  other  hand,  it  must  be  noted,  that  a 
slackened  demand  tends  to  lower  the  price.  If 
buyers  become  less  eager  than  they  were,  sellers 
are  apt  to  become  more  pliant  than  they  were. 
When  the  sales  at  75  become  few  and  far  betwee'n, 
it  is  for  the  interest  of  the  sellers  to  tempt  the 
market  by  offering  wheat  at  74,  perhaps  at  73, 
possibly  at  72.  A  lower  price,  which  is  itself  a 
consequence  of  slack  demand,  tends  immediately 
to  quicken  demand  by  enlarging  the  circle  of 
buyers,  and  this  quicker  demand  tends  to  carry  up 
the  price  -again.  Looking  at  demand  only,  within 
those  outermost  limits  formed  by  mutual  desires 
and  efforts  beyond  which  price  will  not  go,  there 
is  a  natural  check  that  keeps  price  from  rising  to 
nn  extreme  in  the  fact  that  high  price  from  sharp 
«leir.and  cuts  off  demand  and  tends  consequently 
to  lower  price  again,  and  there  is  a  natural  check 
of  the  same  kind  that  keeps  price  from  falling  to 
an  extreme  in  the  fact  that  low  price  from  small 
demai  d  is  apt  to  call  back  demand  and  conse- 
quently to  stiffen  price  again. 


72  POLITICAL  ECONOMY. 

But  this  is  only  a  part  of  the  full  beauty  of  the 
natural  law  that  regulates  values.  We  have  ob- 
served the  checks  acting  in  either  direction 
through  changes  in  the  demand;  there  are  also 
checks  acting  in  either  direction  through  changes 
in  the  supply.  There  are  three  classes  of  services 
in  respect  to  the  law  of  their  supply :  first,  those 
whose  supply  can  be  indefinitely  increased  at  short 
notice;  second,  those  whose  supply  can  only  be 
increased  after  a  considerable  lapse  of  time ;  and 
third,  those  whose  supply  cannot  be  increased 
at  all,  like  the  paintings  of  the  old  masters,  and 
unique  products  generally.  The  line  between 
the  first  and  second  of  these  classes  is  not  a  very 
sharp  one,  but  still  definite  enough  to  lead  to  im- 
portant practical  consequences.  Salt,  for  exam- 
ple, is  a  product  whose  supply  in  any  market  can 
be  indefinitely  increased  at  short  notice. 

Cotton,  on  the  other  hand,  when  once  the  crop 
of  the  year  has  been  gathered,  cannot  be  enlarged 
in  quantity  for  a  twelvemonth,  though  this  quan- 
tity may  be  differently  distributed  under  varying 
demand.  The  same  remark  applies  to  wheat,  and 
other  agricultural  products,  though  cotton  is  a 
better  example,  because  it  is  successfully  raised  at 
only  few  points,  mostly  in  the  United  States, 
where  9,518,000  acres  were  planted  to-  cotton  in 
1876.  Now,  in  respect  to  the  first  two  of  these 
classes,  and  particularly  the  first  one,  whenever 
a  brisk  demand  is  carrying  up  the  price  in  any 
market  even  before  the  rising  price  is  checked 


VALUE.  73 

in  the  manner  already  indicated,  it  is  apt  to  be 
checked  by  an  increase  of  the  supply.  A  market 
in  which  prices  are  rising  is  a  good  market  to  sell  in. 
The  farmers  and  speculators  within  hailing  distance 
of  Milwaukee  find  out  that  wheat  is  creeping  up 
towards  75,  and  the  stock  in  that  city  is  quickly 
augmented  through  their  action.  Increased  supply 
tends  to  lower  price,  because  there  are  now  more 
sellers,  at  least  more  stock  to  be  sold,  more  motive 
to  trade  at  some  price.  Thus,  in  these  classes  of 
things,  there  are  two  ever-present  checks  to  a  ris- 
ing price,  namely  a  falling-off  of  purchasers,  and 
an  increased  supply.  Of  course,  in  this  discussion, 
we  take  no  account  of  changes  in  the  quantity  or 
quality  of  money.  We  assume  a  fixed  standard. 

So  also,  there  are  two  ever-present  checks  to  an 
extreme  fall  of  price  in  respect  to  every  thing  of 
which  a  market-rate  can  be  predicated.  There  are 
various  unique'  things,  articles  of  virtu,  things 
whose  price  depends  on  fashion  or  caprice,  in  re- 
spect to  which  no  useful  principle  can  be  laid 
down  beyond  the  most  general  ones  already  given. 
They  belong  in  the  auction-room  rather  than  in 
the  market.  Their  price  is  high  or  low  according 
to  taste  and  circumstances.  A  portrait  by  Gains- 
borough has  just  been  sold  in  England  for  about 
fifty  times  the  sum  of  a  previous  sale.  Such 
things,  though  their  changes  in  value  are  interest- 
ing and  illustrate  our  fundamental  propositions, 
are  of  comparatively  little  account  in  Political 
Economy,  which  interests  itself  mainly  in  things 


74  POLITICAL  ECONOMY. 

that  have  a  market-rate  and  in  principles  applica- 
ble to  that.  When  a  market  is  falling,  there  is, 
as  before,  a  double  check  that  tends  to  prevent  it? 
falling  further.  First,  the  enticement  of  ne\t 
purchasers  through  a  low  price,  which  tends 
thereby  to  become  higher ;  and  second,  the  action, 
through  supply,  of  holders-  and  speculators,  who. 
respectively,  withdraw  their  stock  for  a  better 
market,  and  buy  up  now  while  the  article  is  cheap 
to  store  away  till  it  shall  be  dearer.  This  acts  on 
supply  to  lessen  it,  which  acts  on  price  to  raise  it. 
At  this  very  time  of  writing,  the  woollen  manu- 
facturers of  this  county  are  buying  California 
wool  far  in  excess  of  their  immediate  wants, 
because  wool  is  exceptionally  cheap  there  at  pres- 
ent,—  because  it  can  be  bought  for  Hi  cents  per 
.pound  and  brought  round  by  the  Horn  for  one 
half  cent  per  pound,  with  no  heavy  duties  to  be 
paid  on  it,  such  as  must  be  paid  on  foreign  wool. 
This  prudent  action  of  my  Berkshire  neighbors 
affects  the  California  wool  market  to  prevent  the 
price  there  from  falling  so  low  as  it  would  other- 
wise fall.  At  one  and  the  same  time  it  lessens  the 
supply  and  increases  the  demand  there. 

This  law  of  Demand  and  Supply  thus  doubly 
tind  harmoniously  working,  thus  tending  to  keep 
steady  and  calculable  the  prices  of  the  great  sta- 
ples1, of  human  life  and  activity,  while  more  obvi- 
ous in  its  application  within  the  field  of  material 
commodities,  nevertheless  extends  its  operation 
over  the  field  of  personal  services,  and  the  field  of 


VALUE.  75 

commercial  claims.  It  is  all-comprehensive.  The 
tendency  of  all  economical  forces  is  towards  the 
equalization  of  demand  and  supply,  that  is  to  say, 
towards  the  disposal  of  each  man's  own  product 
where  it  is  most  wanted,  and  the  returning  to  him 
in  lieu  of  it  the  product  he  most  wants.  The 
result  may  be  called  the  EQUATION  OF  COMPETI- 
TION. The  mainspring  of  action  in  the  economi- 
cal world  is  self-interest.  The  practical  regulator 
of  values  is  competition.  These  words  sound 
harsh,  but  the  impulses  underneath  them  work 
equally  for  the  good  of  each  and  for  the  good  of 
all.  They  work  in  a  sphere  prescribed  for  them. 
They  work  under  limitations  and  checks  that  are 
marvellous  to  the  mind  that  comprehends  them. 
That  they  do  not  work  perfectly  is  admitted. 
Sales  are  not  always  made  at  market-rates.  There 
are  sometimes,  so  to  speak,  more  market-rates  than 
one  in  the  same  market-town.  Competition  some- 
times becomes  unscrupulous  and  immoral,  and 
combinations  are  made  to  prevent  the  play  of 
wholesome  competition.  Sometimes  even  govern- 
ments are  persuaded  to  frame  individual  "mis- 
chief into  a  law,"  and  to  throw  obstacles  in  the 
way  of  the  free  working  of  natural  forces.  But, 
after  all,  these  forces  vindicate  themselves  in  the 
long-run;  they  punish  the  transgressors,  even  if 
they  do  not  restore  the  individual  sufferers ;  they 
emphasize  the  maxim  by  results,  that,  Honesty  is 
the  best  policy ;  they  exhibit  a  wisdom  and  scope 
and  persistency  in  marked  contrast  to  Jiumau 


76  POLITICAL  ECONOMY. 

industrial  legislation ;  and  they  demand  to  be  let 
alone  to  work  out  in  freedom  —  under  moral  re- 
strictions only  —  the  economical  progress  of  man- 
kind. 

Before  closing  the  chapter,  it  may  be  well  to 
remark,  that,  under  this  great  law  of  value,  whiuh 
will  be  further  illumined  in  subsequent  chapters, 
prices  will  be  steadiest  in  that  class  of  things 
whose  supply  can  be  soonest  reached  and  is  largest 
in  amount;  next  steadiest  in  the  second  class  of 
things,  like  farm  products,  whose  supply  is  depend- 
ent on  the  seasons,  and  in  which  fluctuations  in 
price  and  speculation  are  oftener  observed  than 
in  the  other  class,  although  since  the  abolition  of 
the  Corn-Laws  in  England  and  the  consequent 
opportunity  for  free  importation  from  all  coun- 
tries, grain  has  approximated  there  in  steadiness 
to  the  staples  of  the  other  class ;  and  least  steady 
in  the  third  class  of  things  whether  material  or 
other,  whose  price  is  more  dependent  upon  de- 
mand, and  less  able  to  be  regulated  through 
supply. 

Let  us  now  put  into  a  summary  for  review  the 
principal  points  already  made  :  — 

1.  Political  Economy  has  to  do  with  men  as  BUY- 
ERS AND  SELLERS  only. 

2.  There   is   a   Science  of  SALES,  because   these 
afford  all  the  conditions  under  which   other  strict 
sciences  are  built  up. 

3.  A  Science  is  the  BODY  of  exact  definitions  and 
sound  principles  educed  from  and  applied  to  a  sin- 
gle class  of  facts  or  phenomena. 


VALUE.  77 

4.  The  pre-arrangements  of  Providence,  the  attri- 
butes of  human  nature,  and   the  laws  and  usages 
devised  by  men,  are  the  SOURCES  of  economical  truth. 

5.  Commodities,  services,  and  claims  are  the  three 
KINDS  of  salable  things, — giving  rise  to  six  possible 
cases  of  sales. 

6.  The  rendering  of  any  thing  for  something  in 
return  is  a  SERVICE. 

7.  Value   is  the   RELATION  of  mutual  purchase 
established  between  two  services  by  their  exchange. 

8.  Utility  is  the   simple   CAPACITY  to  gratify  a 
human  desire,  and  so  is  quite  different  from  Value. 

9.  Price  is  Value  expressed  in  MONEY. 

10.  Value  starts  in  desires,  gives  birth  to  efforts, 
proceeds  by  estimates,  and  ends  in  SATISFACTIONS. 

11.  The  fundamental  LAW  of  Political  Economy 
is  that  of  Demand  and  Supply. 

12.  There  are  three  classes  of  valuable  things  in 
the  law  of  their  SUPPLY. 


78  POLITICAL  ECONOMY. 


CHAPTER  II. 

PBODTJCTIOH. 

I  HAVE  sought,  in  the  previous  chapter,  to  give 
a  clear  idea  of  what  Value  is,  and  of  the  important 
part  it  plays  in  the  on-going  of  the  world.  Next 
to  Virtue,  Value  is  the  most  important  thing  for 
human  happiress.  It  occupies  the  thoughts  of 
men  more  than  any  thing  else.  It  is  itself  the 
product  of  two  minds  estimating  at  one  time  two 
things  in  relation  to  each  other,  and,  concluding 
them  to  be  for  certain  purposes  the  equivalents  of 
each  other,  accepting  the  one  in  the  place  of  the 
other.  Value  has  no  existence  outside  the  minds 
of  men.  The  conditions  for  it  indeed  exist  in  the 
constitution  of  the  physical  earth,  and  in  the 
structure  of  society,  as  well  as  in  the  nature  of 
the  individual  man,  but  the  determination  of  it, 
the  calling  of  it  into  being,  the  pronouncing  upon 
its  reality  and  amount,  is  always  the  work  of  two 
ininds.  Value,  accordingly,  is  always  a  result.  It 
is  the  consummation  of  what  has  been  prepared 
for.  Things  physical,  things  intellectual,  things 
social,  all  play  a  part  as  preparatory  to  the  reaHza- 


PRODUCTION.  79 

tion  of  value.  We  must  now  attend  to  these  pro- 
cesses, that  lead  up  to  this  result.  They  may  all 
be  classed  under  the  general  name  PRODUCTION. 

The  term  Production  is  derived  from  the  Latin 
word  producere,  which  means,  to  lead  forth,  to 
expose  for  sale.  Terence  uses  the  expression, 
"producere  servos,"  to  offer  slaves  for  sale.  We 
must  rid  ourselves  at  the  outset  of  the  notion, 
that  is  apt  to  linger  about  this  word,  namely,  that 
it  is  only  properly  applied  to  forms  of  matter,  and 
that  it  only  means  to  make  something,  or  to  grow 
something,  or  at  least  to  transform  something. 
Terence  did  not  mean  to  say  that  the  person  of 
whom  he  was  speaking  brought  the  slaves  into 
being,  but  only  that  he  brought  them  out  to  sell. 
In  common  language,  the  growth  of  the  farm  is 
called  Produce,  but  only  when  it  is  offered  for 
sale,  in  which  sense  we  speak  of  the  produce- 
market.  The  fundamental  meaning  of  the  root- 
word  both  in  Latin  and  English  is  effort  with 
reference  to  a  sale  ;  and  this  is  the  exact  scientific 
sense  in  which  I  propose  to  use  the  word  and  its 
derivatives.  I  hope  1  am  making  at  this  point  a 
slight  contribution  to  a  more  exact  nomenclature 
in  Political  Economy. 

Production  is  always  Effort,  but  it  is  not  every 
kind  of  effort  that  is  production.  My  boy  is  now 
playing  the  piano  in  the  parlor;  it  is  effort  for 
him,  —  irksome  effort,  —  but  as  he  has  no  inten- 
tion ever  to  sell  his  acquired  skill  upon  that  in- 
strument, it  cannot  be  called  productive  effort. 


80  POLITICAL  ECONOMY 

It  is  effort  put  forth  for  altogether  other  than  com- 
mercial reasons.  The  effort  of  his  music-teacher, 
however,  who  comes  here  to  give  him  his  lessons, 
is  productive  effort,  inasmuch  as  it  is  put  forth 
solely  with  reference  to  a  sale.  Efforts  of  all 
kinds  that  find  their  purpose  and  end  in  an  ex- 
change are  Production:  efforts  put  forth  for 
amusement,  for  self-improvement,  for  benevolence, 
lor  personal  or  family  gratification,  are  not  Pro- 
duction. Political  Economy  has  to  do  with  pro- 
cesses simply  as  these  are  related  to  sales ;  and  it 
makes  no  difference  what  kind  of  processes  they 
are,  if  they  have  that  design  and  issue.  Some 
efforts,  like  those  of  the  farmer,  the  miner,  the 
wagon-maker,  have  to  do  with  material  things  in 
the  way  of  preparing  them  for  sale,  and  Political 
Economy  is  interested  in  these  efforts,  inquires 
after  their  kinds  and  cost,  as  bearing  on  the  sale 
that  is  to  come ;  other  efforts,  like  those  of  the 
banker,  have  to  do  with  salable  credits,  and 
Political  Economy  inquires  into  all  the  processes 
of  banking ;  while  still  other  efforts,  like  those  of 
the  public  singer,  prepare  for  and  are  connected 
with  the  rendering  of  merely  personal  services,  and 
Political  Economy  accordingly  inquires  into  the 
conditions  and  law  of  wages.  Production,  then,  is 
effort  in  getting  something  ready  to  sell,  and  selling 
it.  A  Producer  is  a  person  who  does  just  this, 
without  any  reference  to  the  kind  of  things  he 
sells,  whether  they  be  commodities,  services,  or 
claims.  A  product  is  any  thing  ready  to  be  sold. 


PRODUCTION.  81 

The  adjective  productive,  although  it  is  often  used 
as  synonymous  with  fertile,  finds  its  only  proper 
economical  sense  in  harmony  with  these  defini- 
tions. 

In  current  language,  one  hears  consumers  con* 
trasted  with  producers,  and  consumption  spoken  of 
as  the  opposite  of  production.  These  words  are 
correlative  to  each  other  in  much  the  same  way 
as  supply  and  demand.  One  set  of  men  are  not 
the  producers,  and  another  set  the  consumers,  but 
each  producer  is  in  another  aspect  a  consumer, 
and  each  consumer  is  in  another  aspect  a  producer. 
As  derived  from  the  Latin  consumere,  which  means 
to  use,  to  employ,  as  well  as,  to  waste,  to  destroy, 
the  English  derivatives  have  a  little  stronger  taint 
of  ambiguity  about  them  than  the  derivatives  of 
producer ~e,  which,  as  we  have  seen,  have  not  wholly 
escaped  ambiguity.  In  their  economical  sense, 
however,  with  which  alone  we  have  to  do,  to  con- 
sume means  to  take  up,  to  use  ;  the  consumer  is  the 
customer,  the  purchaser  ;  and  consumption  is  simple 
purchase.  Many  things  purchased  are  destroyed 
as  to  form  almost  immediately,  while  many  other 
things  purchased  are  not  thus  destroyed,  but  both 
are  equally  "  consumed  "  in  the  technical  sense. 

For  example,  a  shoe  manufacturer  buys  at  the 
same  time  a  stock  of  leather  and  a  pegging-ma- 
chine :  the  leather  immediately  disappears  as 
leather,  and  re-appears  in  the  form  of  shoes ;  the 
pegging-machine  for  years  and  years  "  keeps  peg- 
ging away;"'  but  the  manufacturer  is  equally  the 


82  POLITICAL  ECONOMY. 

"  consumer  "  in  relation  to  them  both.  Whenever 
any  producer  exchanges  his  product  for  another) 
he  becomes  a  consumer  in  relation  to  that  product, 
while  the  other  party  is  equally  producer  and 
consumer  in  relation  to  him.  This  illustrates  the 
complexity  and  the  harmony  of  interests  in  the 
economical  world.  The  sooner  any  man's  product 
is  consumed  the  better  for  him  and  for  everybody 
else. 

We  are  now  in  position  intelligibly  to  discusg 
the  requisites  and  processes  of  Production.  These 
requisites  are  only  three:  NATURAL,  AGENTS, 
LABOR,  CAPITAL. 

By  Natural  Agents  is  meant  every  thing,  out- 
side of  man  himself,  furnished  gratuitously  by 
God  to  men,  by  means  of  which  their  productive 
operations  may  be  sustained  and  facilitated.  The 
chief  of  these  are  the  Land,  out  of  which  comes 
our  bread  ;  the  Materials  on  the  earth  and  within 
it,  like  stone,  timber,  the  metals,  coal,  petroleum, 
and  salt ;  the  Sea,  which  at  once  divides,  unites, 
and  enriches  the  nations ;  the  various  natural 
Forces,  such  as  those  of  wind,  water,  steam, 
electricity,  and  so  on ;  and  what  are  called  the 
domestic  animals,  the  ox,  the  ass,  the  horse,  and 
others.  These  are  all  gifts  of  God  to  men. 
Originally,  and  before  any  labor  is  expended  in 
connection  with  them,  all  of  them  are  wholly  des- 
titute of  value.  Some  of  them,  like  the  salt  and 
the  spontaneous  growths  of  the  earth,  may  have 
utility,  that  is,  capacity  to  gratify  human  desire, 


PRODUCTION.  83 

but  value  they  have  not,  and  never  get,  except  as 
labor  is  expended  on  them  or  in  some  connection 
with  them.  Wind  blows,  and  water  gravitates, 
and  steam  puffs,  and  electricity  darts,  for  nothing. 
The  Hollander  builds  his  windmill  with  onerous 
effort,  and  can  doubtless  sell  the  structure  to  his 
neighbor,  but  the  wind  that  fills  its  wings  costs 
i.oither  of  them  any  thing.  Most  of  the  factories 
of  New  England  are  propelled  by  the  weight  of 
falling  water,  but  the  water  leaps  to  those  wheels 
of  industry  without  pay.  The  United  States  ex- 
ported in  the  first  six  months  of  1876,  101,389,183 
gallons  of  petroleum,  but  the  value  of  it  was  due, 
not  to  what  had  been  done  in  the  wonderful 
laboratory  of  Nature,  but  wholly  to  what  had 
been  done  by  men  in  boring  the  wells,  in  securing 
the  oil,  and  in  transporting  the  product.  Provi- 
dence indicates  its  will  that  men  should  be  pro- 
ducers by  offering  on  every  hand  free  materials  to 
be  wrought  upon,  and  free  forces  by  means  of 
which  production  may  be  made  easier.  It  is 
proof  complete  that  these  materials  and  forces  are 
offered  gratuitously,  since  no  man  has  ever  authen- 
ticated his  claim  to  ask  any  thing  for  these  things 
in  God's  behalf. 

If  men  have  done  any  thing  in  the  way  of  labor 
tc  tetter  these  materials  or  to  harness  these  forces, 
they  may  ask  pay  for  that,  and  get  it ;  but  if  they 
go  beyond  this,  and  ask  something  for  what  they 
or  their  predecessors  have  done,  and  something 
additional  for  what  God  has  done,  their  cupidity 


84  .       POLITICAL  ECONOMY. 

will  be  thwarted  both  by  the  competition  of  other 
men,  who  will  offer  similar  products  for  a  fail 
compensation  for  the  human  labor  expended,  and 
especially  by  the  fact,  that  there  are  other  free 
materials  and  forces  not  yet  laid  hold  of  by  any- 
body, which  can  be  put  into  just  as  good  shape  for 
use  'as  these,  by  no  greater  expenditure  of  labor 
than  has  been  put  upon  these.  God  is  a  Giver, 
and  not  a  Seller.  The  whole  world  of  materials 
and  forces  has  been  thrown  open  to  men  with  such 
liberality,  and  under  such  circumstances,  that 
they  cannot  first  appropriate  the  gifts,  and  then 
peddle  them  out  for  pay.  There  may  seem  to  be 
cases  in  which  this  has  actually  been  done,  but, 
as  I  believe,  they  will  mostly  or  wholly  disappear 
under  a  rigid  analysis,  and  particularly  so,  when 
it  is  remembered,  that  abstinence  from  use  or 
enjoyment,  as  well  as  actual  labor  bestowed,  either 
by  a  man  himself  or  by  those  of  whose  labor 
and  abstinence  he  has  rightly  become  proprietor, 
entitles  him  to  demand  a  return. 

Veij  Contrary  to  what  has  often  been  taught 
even  in  books  on  Political  Economy,  these  general 
principles  apply  perfectly  to  Land.  Land  is  the 
most  important  natural  agent.  Its  cultivation 
employs  the  efforts  of  more  than  half  of  the 
human  race.  In  many  countries  its  possession  is 
eagerly  desired  on  account  of  social  considerations 
attaching  to  it.  What,  then,  does  its  value  depend 
on?  I  answer,  that  it  depends  on  precisely  the 
same  considerations  as  the  value  of  other  tilings 


PRODUCTION.  85 

depends  on,  namely,  desires,  efforts,  and  estimates. 
Until  human  efforts  are  put  forth  upon  a  piece  of 
land,  or  in  somp  immediate  connection  with  it, 
that  land  is  valueless  of  course,  both  for  other 
good  reasons,  and  because  no  one  can  lay  any 
claim  to  it,  or  show  any  title  to  it  whatever.  God 
gave  the  earth  to  men  on  the  condition  that  they 
"replenish  and  subdue  it."  Conquest  and  confis- 
cation aside,  the  personal  ownership  of  land  has 
always  virtually  come  in  under  the  efforts  implied 
in  this  word  subdue.  Whenever  an  individual,  or 
a  family,  has  expended  labor  upon  a  parcel  of  land, 
has  improved  it,  has  made  it  easier  for  another 
family  to  gain  a  living  from  it,  then,  wishing  to 
leave  it,  he  might  properly  enough  offer  to  sell  it 
to  a  new-comer.  But  what  would  he  offer  to  sell  ? 
The  inherent  qualities  of  the  soil?  Those  natural 
forces  which  he  had  not  improved  ?  No !  He 
could  only  sell  what  he  himself  had  contributed  of 
betterment.  He  would  not  think  of  selling  any 
thing  else ;  and  even  if  he  did  think  of  it,  he 
would  not  succeed  in  doing  it,  for  the  reason,  that 
no  one  would  give  him  any  thing*  for  the  original 
qualities  of  the  soil.  In  the  beginnings  of  socie- 
ties and  settlements  there  is  always  an  abundance 
of  land  to  be  had  for  uie  mere  occupation  and 
subjugation  of  it ;  and  it  is  contrary  to  the  im- 
pulses of  human  nature  to  suppose  that  a  later 
would  give  an  earlier  comer  any  tiling  more  than 
a  fair  equivalent  for  what  had  been  wrought  of 
actual  improvement,  while  other  lands  just  jus 


86  POLITICAL  ECONOMY. 

feasible  as  that  originally  was  are  all  open  to  him 
"  where  to  choose."  It  must  be  remembered  that 
estimates  always  precede  value ;  .and  that  men  do 
not,  as  a  rule,  give  something  for  what  they  can 
just  as  well  have  for  nothing. 

In  older  settled  countries,  in  which  the  fee  sim- 
ple prevails,  after  all  the  good  lands  have  been 
taken  up,  men  are  always  found  willing  to  part 
with  land  as  with  any  thing  else  for  about  what  it 
has  cost  them  of  effort  or  money,  and  the  action 
of  these  tends  to  make  a  market-rate  for  lands, 
and  competition  eliminates  all  the  gratuitous  ele- 
ments involved  from  any  action  upon  price,  and 
leaves  the  value  of  land  to  be  determined  as  other 
values  are  by  the  onerous  elements  involved. 
This  abstract  view  is  confirmed  by  facts.  It  has 
long  been  a  maxim  in  our  Western  States,  that 
farms  of  the  most  fertile  land  are  worth  about  the 
present  value  of  the  improvements  on  them,  and 
no  more ;  and  it  has  been  calculated  at  large  by 
Mr.  Carey,  that  the  lands  in  all  countries  are  now 
worth  far  less  than  it  has  actually  cost  to  amelio- 
rate them.  I  know  from  personal  knowledge,  that 
farms  in  my  native  state  of  New  Hampshire, 
which,  in  my  boyhood,  supported  large  families, 
have  been  abandoned  by  their  late  owners,  and 
are  now  growing  up  to  forest  again.  They  could 
not  sell  them  at  any  price,  they  have  simply  left 
them  to  lapse  into  their  primitive  state,  while  they 
and  their  families  have  migrated  to  the  West. 
All  this  does  not  look  as  if  lands  had  value  in 


PBODTTCTIOlir.  87 

themselves  separate  from  the  endeavors  of  men. 
Nothing  Las  value  in  itself  separate  from  the 
endeavors  of  men. 

On  the  other  hand,  it  must  not  be  supposed 
that  the  value  of  different  parcels  of  land  is 
always  proportioned  to  the  amount  of  efforts  put 
forth  upon  them ;  the  efforts  may  have  been  mis- 
directed; the  utility  sought  to  be  conferred  by 
labor  may  not  have  found  the  requisite  utility 
underneath ;  the  desires  calculated  to  be  met  may 
have  taken  another  turn ;  and  so,  there  may  be  a 
greater  diversity  in  the  value  of  lands  than  in  the 
amount  of  efforts  expended  upon  them.  Still,  the 
efforts  are  always  the  basis  of  the  value,  and  not 
the  natural  fertility  of  the  lands.  While  it  is  not 
denied  that  the  varying  natural  fertility  in  lands 
may  within  certain  limits  vary  the  prices  of  those 
lands,  it  is  confidently  affirmed,  that  a  high  degree 
of  natural  fertility  has  been  scattered  with  so 
bountiful  a  hand,  and  that  lands  naturally  less  fer- 
tile have  such  compensating  advantages  of  another 
sort,  that,  under  a  broad  view,  the  degree  of  origi- 
nal fertility  becomes  a  common  factor  cancelled  in 
price,  according  to  principles  already  explained. 

Let  me  remind  my  readers  also,  that  lands  are 
often  desired  on  other  grounds  than  their  fertility, 
ai:d  that  whatever  goes  to  make  them  an  object  of 
special  desire  becomes  an  element  in  their  value. 
Laud  in  cities  often  becomes  extremely  valuable, 
not  at  all  on  account  of  native  fertility,  not  so 
much  on  account  of  what  has  been  done  on  or 


88  .      POLITICAL  ECONOMY. 

soncerning  that  particular  patch,  although  the  ex 
penditure  and  abstinence  of  previous  owners  may 
a  good  deal  influence  the  price,  as  we  shall  better 
understand  when  we  come  to  study  Capital,  but 
mainly  on  account  of  what  has  been  done  and  is 
being  done  all  around  it :  —  a  busy  city  has  grown 
up  around  it,  and  that  piece  has  become  desirable 
for  business  or  other  uses  in  consequence  of  the 
action  of  others  than  the  owner.  It  is  thus  that 
social,  municipal,  and  political  movements  win 
their  power  to  influence  values  by  making  some 
things  more  desirable  than  they  were,  and  other 
things  less  desirable.  Lands  supposed  to  contain 
rich  mines,  or  holding  an  extraordinary  water- 
power,  or  containing  a  building  site  of  unusual 
beauty,  frequently  excite  a  strong  desire  in  cer- 
tain persons  to  possess  them,  and  bear  in  conse- 
quence a  high  price.  These  lands  are  assimilated 
in  the  law  of  their  value  to  other  unique  products. 
If  there  be  no  competition  in  the  sale  of  such 
things,  and  consequently  no  market-rate,  the  only 
gauge  of  their  value  is  the  degree  of  service  which 
the  owner  can  render  the  purchaser  by  means  of 
them.  That  portion  of  their  utility  that  is  the 
free  gift  of  Nature  is  commingled  with  the  utility 
that  has  been  conferred  by  man,  and  there  is  not 
the  usual  opportunity  through  competition  to 
throw  out  from  its  action  on  value  the  gratuitous 
utility.  These  are  comparatively  unimportant 
exceptions,  and  themselves  come  with  precision 
under  our  fundamental  principles. 


PRODUCTION.  89 

We  can  now  see  exactly  how  Nataral  Agents 
stand  related  to  Production.  They  are  a  requi- 
site of  production.  They  assist  and  sustain  the 
processes.  They  are  not  of  equal  rank  in  produc- 
tion with  man  and  his  efforts.  Men  make  use  of 
them  to  further  and  enlarge  their  designs  of  sale. 
Lands  are  subdued  and  cultivated  and  improved 
by  men  for  the  sake  of  more  profitable  harvests ; 
but  the  lands  demand  back  nothing  for  them- 
selves ;  they  are  not  an  independent  and  co-ordi- 
nate contributor  to  production ;  if  they  are  hired, 
as  they  often  are,  the  rent  paid  for  the  use  of 
them  is  not  in  virtue  of  the  original  qualities  of 
the  soil  of  which  some  chance  grabber  became 
proprietor,  but  in  virtue  of  previous  human  toil 
and  care,  which  must  also  be  continued  in  the 
future,  or  else  the  lands  will  become  valueless 
again  as  they  were  in  the  beginning.  Moreover, 
liberally  as  lands  respond  to  improvements  in 
agriculture,  there  is  a  limit  to  their  power  to 
respond.  If  I  double  the  labor  upon  my  turnip- 
field,  I  may  possibly  for  a  single  year  double  my 
crop  of  turnips ;  but  if  I  redouble  the  expense  for 
the  next  year,  I  shall  not  redouble  my  crop ;  for, 
if  that  were  the  law  of  returns  in  agriculture,  if 
increased  effort  upon  a  given  area  increased  the 
produce  in  the  same  ratio,  an  acre  were  as  good 
for  productive  purposes  as  100  acres,  and  100 
acres  were  as  good  as  a  continent. 

If  it  were  not  for  this  universal  law  of  agricul- 
ture, namely,  that  relatively  diminishing  return* 


90  POLITICAL  ECONOMY. 

accompany  increasing  expenditures  upon  land,  the, 
surface  of  the  earth  would  not  now  be  occupied 
by  husbandmen  as  it  is  occupied.  The  agricultu 
ral  motive  that  leads  men  to  pass  from  the  first  to 
the  second  acre,  from  the  old  farm  to  the  new, 
from  the  mother-country  to  colonies,  and  from  one 
country  to  another,  is  the  fact,  that,  under  any 
given  conditions  of  agricultural  skill,  the  limit  of 
productiveness  is  soon  reached,  the  law  of  dimin- 
ishing returns  comes  into  play,  and  it  becomes 
profitable  to  migrate  to  "  fresh  fields  and  pastures 
new."  Of  course,  all  improvements  in  scientific 
and  practical  agriculture,  the  discovery  of  new 
methods  like  the  rotation  of  crops,  the  invention 
of  better  implements,  the  application  of  new  fer- 
tilizers, the  light  thrown  upon  farming  by  Chemis- 
try, retard  the  law  of  diminishing  returns,  and  tend 
to  keep  husbandmen  as  such  in  their  old  haunts. 
Providence  has  made  use  of  this  law  in  order  to 
people  the  whole  earth  in  accordance  with  the 
original  direction  that  the  earth  be  "replenished;" 
and  in  making  man  the  lord  of  the  earth,  and 
giving  him  "dominion  over  the  fish  of  the  sea, 
and  over  the  fowl  of  the  air,  and  over  every  living 
thing  that  moveth  upon  the  earth,"  *  there  is  un- 
mistakably brought  out  the  essential,  though  sub- 
ordinate, relation  of  all  natural  agents  to  man. 

Notwithstanding  the  law  of  diminishing  returns 
in  agriculture,  which,  as  has  been  shown,  has 
already  had  important  effects  in  dispersing  people 

i  Gen.  ii.  28. 


PRODUCTION.  91 

over  the  earth,  the  earth  has  never  yet  in  any 
part  of  it  yielded  what  it  is  capable  of  yielding  for 
the  sustenance  of  her  children,  fier  produce  can- 
not indeed  be  indefinitely  increased  in  a  geometri- 
cal ratio,  but  it  may  be  immeasurably  increased  in 
an  arithmetical  ratio ;  and  while  it  is  abstractly 
possible  that  population  may  increase  in  a  geomet- 
rical ratio,  that  is,  double  itself  in  each  genera- 
tior  ;  and  while  Mr.  Malthus  has  given  his  name 
to  a  theory  of  fear  lest  population  may  one  day 
trench  on  the  possible  means  of  sustenance ;  yet 
it  is  undoubtedly  true,  as  a  matter  of  fact,  that 
the  population  of  the  earth,  increased  as  it  is, 
was  never  as  a  whole  so  well  fed  and  clothed  and 
housed  as  it  is  to-day ;  and  it  is  undoubtedly  true, 
as  a  matter  of  reasonable  conclusion,  that  the  earth 
is  capable,  under  a  proper  development  of  all  her 
food-sources  of  flesh,  fish,  fowl,  cereals,  and  vege- 
tables, of  sustaining  in  comfort  a  population  many 
thousand-fold  greater  than  the  present ;  while  it 
is  also  undoubtedly  true,  whatever  may  be  said 
of  abstract  possibilities,  that  legitimate  checks  to 
population,  which  come  silently  and  effectually 
into  play  as  men  come  more  and  more  under  the 
sway  of  reason  and  affection,  may  be  rationally 
expected  forever  to  prevent  the  Malthusian  im- 
pinging of  population  upon  food. 

In  respect  to  all  the  other  natural  agents,  just 
as  in  respect  to  the  earth  itself,  they  are  ready  to 
slave  in  the  service  of  man.  What  the  earth  does 
in  producing  wheat,  or  rice,  or  any  other  of  her 


92  POLITICAL  ECONOMY. 

growths,  enters  as  no  element  into  their  value  ; 
since  the  sun  shines  free,  and  the  rain  falls  free, 
and  the  chemical  actions  in  growth  and  maturing 
work  free  ;  and  the  more  bountifully  under  more 
skilful  culture  the  earth  can  be  made  to  yield  her 
increase,  the  lower,  so  far  forth,  will  be  the  value 
of  any  specific  part  of  that  produce.  Just  so,  the 
other  natural  agents  are  ready  to  work  Avithout 
money  and  without  price.  Ever  since  the  Atlantic 
cable  was  laid,  and  a  path  was  made  for  the  light- 
ning, electricity  has  done  its  part  in  ocean  teleg- 
raphy for  nothing.  Did  my  readers  ever  think 
for  what  purpose  men  require  the  -help  of  most 
of  these  natural  agents  ?  It  is  simply  to  produce 
motion  for  them.  Indeed,  in  physical  labor,  all 
that  man  himself  can  do  is  to  make  a  series  of 
motions.  His  muscles  are  only  adapted  to  do  that. 
When  he  has  moved  things  into  right  positions, 
the  powers  of  nature  will  do  the  rest.  At  any 
rate,  that  is  all  he  can  do. 

I  have  heard  all  the  morning  in  the  fields  around 
my  house  the  click  of  the  mowing-machine.  It  is 
moved  by  two  horses,  a  man  riding  on  the  ma- 
chine, and  guiding  both  the  horses  and  the 
machine.  All  that  the  horses  do  is  to  draw  the 
macliine  through  the  grass,  and  all  that  the  man 
does  is  to  guide  the  horses  with  one  hand  by 
pulling  the  reins,  and  guide  the  machine  with  the 
other  by  lifting  or  depressing  a  bar.  The  mowing 
is  nothing  but  a  series  of  motions  animal  and 
human.  Formerly,  men  did  all  the  mowing  by 


PRODUCTION.  93 

scythes  drawn  by  hand.  That  was  simple  motion. 
Now,  they  substitute  horse-power,  that  is,  they 
use  horses  to  make  the  motion  that  cuts  the  grass. 
If  the  swath  is  spread  by  fork  or  tedder,  it  is 
motion  that  spreads  it,  human  or  animal,  as  the 
case  may  be.  The  tedder  is  superseding  the  fork 
for  that  use.  The  hay  is  lifted  to  the  cart,  and 
thence  to  the  mow,  by  another  series  of  motions, 
in  which  some  progress  has  already  been  made  in 
substituting  power  for  muscle.  Haying  is  motions. 
So  is  ploughing,  and  harrowing,  and  sowing,  arid 
reaping.  So  are  all  the  operations  of  the  farm 
whatsoever.  So  is  washing  the  sheep,  shearing 
the  fleece,  dyeing  the  wool,  carding,  spinning, 
weaving,  specking,  gigging,  finishing,  packing,  — 
all  the  processes  of  manufacturing  from  beginning 
to  end.  Think  of  it !  Physical  work  is  nothing 
in  the  world  but  the  contraction  and  relaxation 
of  muscle  guided  by  an  intelligent  mind.  But 
this,  repeated  and  continued,  becomes  wearisome  ; 
and,  probably,  in  the  very  beginnings  of  society, 
certainly,  very  early,  men  looked  around  for  helps 
in  this  matter  of  making  motions. 

They  first  pressed  the  domestic  animals  into 
this  service  ;  and  it  is  worth  noticing,  that  the  ox, 
the  ass,  the  horse,  are  only  desirable  and  valuable 
as  creators  of  motion  for  man.  They  greatly 
relieve  his  muscles,  and  greatly  enlarge  the  sphere 
of  his  physical  activities.  Savages  dig  the  earth 
for  planting  with  a  hoe ;  civilized  men  plough  and 
harrow  it  by  means  of  natural  agents.  After- 


94  POLITICAL  ECONOMY. 

wards,  men  thought  of  some  inanimate  auxiliaries 
in  making  motion,  and  the  water-wheel  and  wind 
mill  were  devised.  Gravitation  is  a  constant  force 
in  nature,  asks  for  no  rest,  feels  no  weariness,  and, 
throwing  water  upon  a  wheel,  can  move  things 
equal  to  a  thousand  men.  In  flat  countries,  the 
force  of  wind  moving  upon  a  vertical  or  horizontal 
wheel  fitted  with  a  kind  of  wing  or  sail  to  catch 
the  breeze  is  only  a  less  efficient  agent  than  the 
force  of  falling  water. 

Much  later,  steam  was  discovered  as  a  motive- 
power  ;  and  later  still,  electricity.  The  piston-rod 
moves  back  and  forth  by  a  motion  quite  analogous 
to  that  of  the  human  arm ;  and  all  that  steam- 
engines  are  wanted  for  on  land  or  sea,  on  moun- 
tain-top or  in  deep  mines,  is  just  to  reduplicate 
the  power  of  which  a  human  arm  is  capable.  Na- 
ture is  so  cunningly  constructed,  that  materials 
only  need  to  be  moved  aright,  and  objects  of  utility 
and  value  are  the  result.  I  lately  observed  at  the 
International  Exhibition  at  Philadelphia  a  little 
machine,  belonging  to  the  United  States,  and 
tended  by  a  single  girl,  which,  when  fed  by  a  pile 
of  white  paper,  cuts  out  in  outline  a  mass  of 
letter  envelopes,  then  picks  them  up  one  by  one 
much  faster  than  I  can  tell  it,  folds  them  properly, 
glutenizes  the  edge  for  sealing,  stamps  them  with 
the  postal  legend  of  the  United  States,  and  drops 
them  into  a  receptacle  ready  for  packing.  The 
great  engine  communicates  its  motion  by  a  band 
to  this  little  machine,  which  itself,  by  anothei 


PBODUCTION.  95 

series  of  motions,  completes  beautifully  stamped 
envelopes  good  through  the  national  Post-Office 
Steam,  like  the  domestic  animals,  makes  motions 
useful  in  production  ;  but,  no  more  than  they,  can 
it  be  left  to  work  by  itself.  All  natural  agents 
need  the  supervision  of  human  intelligence. 

Electricity,  too,  whose  action  round  the  world 
is  a  never-ceasing  marvel  to  every  thoughtful 
human  being,  works  all  its  wonders  by  a  series  of 
little  motions,  or  interruptions  to  motion.  The 
electric  current  may  be  compared  to  the  contrac- 
tion of  muscle,  the  breaking  of  the  current  to  its 
relaxation.  As  the  motions  of  the  hand  through 
the  pen  jot  down  the  thoughts  of  the  writer,  and 
as  the  motions  of  the  press  make  a  record  of 
thoughts  upon  the  printed  page,  so  the  minute 
twitches  of  an  invisible  current  rushing  upon  a 
wire  communicate  by  sound  or  mark  the  thoughts 
of  men  across  the  continents.  Great  is  motion! 
Great  is  the  adaptation  of  the  materials  of  the 
world  to  be  transformed  into  useful  products  by 
the  forces  of  the  world !  Great  are  the  forces 
of  the  world  to  run  to  and  fro  over  the  earth  to 
do  the  bidding  of  man  ! 

All  this  brings  us  to  a  most  cheering  law  of  Pro- 
ductior.  which  is,  that  production  is  constantly  going 
forward  under  less  and  less  onerous  conditions.  The 
reason  for  this  is  now  very  apparent,  namely,  that 
men  are  able  to  throw  off  more  and  more  of  the 
burden  of  production,  that  is,  of  the  effort  needed 
to  get  things  ready  to  sell,  upon  the  ever-willing 


96  POLITICAL  ECONOMY. 

shoulders  of  nature.  Nature  furnishes  all  raw 
materials  gratuitously ;  and  what  is  more,  furnishes 
on  every  hand  animate  or  inanimate  powers,  which 
men  may  avail  themselves  of,  which  men  are 
availing  themselves  of  more  and  more,  in  fashion- 
ing these  materials  for  the  world's  great  market. 
Almost  any  physical  product,  that  my  readers  can 
name,  represents  vastly  less  of  irksome  human 
effort  than  a  similar  product  represented  one  cen 
tury  ago,  not  to  speak  of  the  greater  contrast  with 
many  centuries  ago.  Take  for  instance,  a  barrel  of 
flour.  The  improvements  in  agricultural  imple- 
ments and  methods  involved  in  growing  and  har- 
vesting the  wheat,  out  of  which  the  flour  comes, 
make  the  onerous  elements  small  compared  with 
what  they  used  to  be.  Wheat  used  to  be  sown, 
and  reaped,  and  threshed  by  hand  ;  now  all  these 
processes  are  done  by  machines  propelled  mainly 
by  horses.  Ridley's  reaper,  which  is  used  in  South 
Australia,  and  other  places  where  no  rain  falls  in 
harvest-time,  combines  the  threshing  with  the 
reaping.  By  the  action  of  this  machine,  the  grain 
is  literally  combed  off  the  stalks,  and  falls  clean 
into  a  receptacle  all  ready  for  the  sack,  while  the 
Stalks  are  left  standing.1  It  "only  costs  $2  gold  an 
acre  thus  to  reap,  thresh,  winnow,  and  bag  wheat 
ready  for  market.  Hand  reaping,  threshing,  and 
so  on,  as  against  this  machine  work,  costs  there 
15.35  gold  per  acre. 

In  this  country,  owing  to  the  climate,  we  have 
1  Musgrave'ft  Studies,  &c.,  p.  108. 


PRODUCTION.  97 

not  got  so  far  as  Ridley's  reaper,  although  the 
immense  threshing-machines  with  winnower  at- 
tached, which  I  have  seen  in  Iowa,  propelled  by 
ten  horses,  and  used  by  neighboring  farmers  in 
combination  and  rotation,  greatly  reduce  the  cost 
from  the  old  hand-flail  times.  Then,  too,  the 
grinding  into  flour  by  improved  machinery  costs 
Ie;?s  than  formerly ;  and  the  barrel  staves  and 
heads  are  cut  by  machines,  which  used  to  be 
shaped  by  the  cooper's  hand  ;  and  transportation 
by  steam  over  steel  rails  is  but  little  in  cost  com- 
pared with  the  old  "  teaming"  times.  The  average 
cost  of  good  wheat  to  the  farmers  of  our  Western 
States  cannot  be  far  from  50  cents,  gold,  per 
bushel ;  and  the  difference  between  this  and  the 
cost  to  the  farmers  of  New  England  one  hundred 
years  ago,  which  could  not  have  been  less  than 
100  cents,  is  wholly  due  to  the  free  forces  that  are 
now  more  fully  in  play. 

What  is  thus  true  of  an  agricultural  product, 
is  still  more  true  of  manufactured  products  of  all 
kinds.  Natural  agents  can  never  have  so  free  a 
play  in  cheapening  the  products  of  the  farm  as  of 
the  factory,  for  three  reasons ;  first,  the  division 
of  labor  cannot  be  carried  very  far  in  agricul- 
ture ;  second,  from  the  nature  of  the  case,  machin- 
ery can  be  less  employed  on  the  farm  than  in  the 
mill,  since  the  latter  deals  with  dead  matter  and 
the  former  largely  with  living  tissues ;  third,  noth- 
ing can  materially  shorten  the  tune  during  which 
the  fruits  of  the  earth  must  mature,  while  all  the 


98  POLITICAL  ECONOMY. 

processes  of  manufacture  may  be  hurried  forward 
without  intermission.  The  wool  on  the  sheep's 
back  to-day  may  be  in  the  dye-house  to-morrow, 
carded  the  next  day,  spun  the  next,  woven  the 
next,  finished  the  next,  and  be  under  the  tailor's 
shears  before  the  week  is  out.  It  is  an  important 
corollary  from  this  principle,  that  a  given  amount 
of  farm  products  tends,  under  free  exchange,  to  buy 
more  and  more  of  manufactured  products  of  all 
kinds;  inasmuch  as  this  great  law  of  gratuitous 
auxiliaries,  which  tends  to  cheapen  all  things 
relatively  to  a  fixed  standard,  applies  less  com- 
pletely to  the  farmer  than  to  the  manufacturer. 
I  have  called  this  elsewhere !  "  The  Farmer's 
Advantage  "  because  the  value  of  farm  products 
is  more  calculable  in  the  present  and  future,  is 
less  liable  to  fluctuations,  and  especially  to  sudden 
decline,  than  the  value  of  manufactured  products 
in  general.  The  farmer  naturally  holds  a  more 
secure  and  conservative  position  in  the  realm  of 
value  than  the  manufacturer  does;  while  both 
should  strive  to  avail  themselves  to  the  fullest 
extent  of  all  the  helps  that  nature  offers  them  in 
their  respective  fields. 

There  is  no  branch  of  industry,  whose  opera- 
tions are  not  becoming  easier  and  more  effective 
in  consequence  of  the  increasing  use  of  natural 
agents.  The  various  forms  of  physical  produc- 
tion, that  is  to  say,  the  bringing  forward  for  sale 
of  commodities,  are  more  facilitated  in  this  way 

1  Agricultural  Address  at  North  Adams,  1870. 


PBODUCTION.  Q9 

than  the  other  kinds  of  production,  because  motion 
can  be  more  directly  applied  to  them  in  theil 
preparation  and  transportation  than  to  the  others ; 
and  natural  agents  pre-eminently  furnish  their  aid 
in  the  form  of  motion.  We  have  already  illus- 
trated the  cases  of  the  production  of  flour  and 
cloth.  There  are  no  commodities,  that  I  am 
aware  of,  the  processes  of  whose  production  ill 
civilized  countries  are  not  being  made  easier  by 
new  applications  of  gratuitous  natural  forces ;  and 
the  selling  of  personal  services,  and  of  claims  of 
all  sorts,  though  less  directly  affected  by  these 
applications,  is  nevertheless  indirectly  greatly  pro- 
moted by  them.  For  example,  laborers  can  go 
much  further  to  their  work  from  their  homes,  and 
thus  be  more  sure  of  finding  work,  by  means  of 
the  railroads ;  the  lawyer  in  his  office  working  up 
a  case  can  bring  needed  evidence  from  a  distance 
by  means  of  the  telegraph ;  and  bankers,  brokers, 
credit-dealers  of  every  name,  proceed  more  safely 
in  their  business  under  the  modern  opportunities 
of  swift  information  and  rapid  action  even  as 
between  distant  countries.  Other,  and  perhaps 
better,  illustrations  will  occur  to  every  reader. 

Now,  the  effect  of  all  this  is  to  make  a  given 
amount  of  effort  in  any  direction  more  prolific  in 
utilities.  More  is  produced  on  all  hands.  Ex- 
changes are  multiplied,  since  there  is  more  to  be 
exchanged.  If  men  do  not  work  fewer  hours 
under  all  these  improvements,  then  they  can  rendei 
a  great  many  more  of  their  peculiar  services ;  and 


100  POLITICAL  ECONOMY. 

the  probability  is,  that,  working  fewer  hours,  and 
having  more  leisure  for  their  families  and  for  self- 
cultivation,  the  improvements  will  more  than  keep 
pace  with  their  relaxation,  and  so  a  double  blessing 
comes  through  God's  free  bounty  in  natural  agents. 
The  cheering  element  about  this  is,  that,  under 
natural  laws  uninterfered  with  by  the  wretched 
legislation  of  men,  more  wants  of  all  men  tend 
constantly  to  be  satisfied  without  any  more  onerous 
exertion  on  their  part.  The  masses  are  no  longer 
content  with  food  and  clothes  and  shelter,  and 
they  should  not  be  encouraged  to  be.  God  has 
ordered  it  so,  that,  without  additional  work,  every- 
body may  have  additional  comforts.  The  wants  of 
all  men  are  indefinite  in  number  and  degree,  and, 
therefore,  production  may  go  forward  indefinitely 
without  ever  a  fear  of  finding  a  general  glut  of 
its  products.  There  is  something  better  under 
natural  law  for  the  toiling  millions  than  "irre- 
trievable helotism."  That  natural  law  is,  that 
production  may  go  forward  under  ever  lightening 
burdens  to  men  with  an  ever  increasing  volume  of 
products  to  be  distributed  by  exchange  among  men. 
Certainly,  in  order  that  men  may  enjoy  the  full 
benefits  of  this  law,  they  themselves  must  be  in- 
dustrious, frugal,  temperate,  virtuous;  and  their 
governments  must  not  overstep  their  legitimate 
functions  in  legislation ;  these,  surely,  should  not 
be  considered  grievances  by  anybody.  The  law 
is  embedded  by  divine  wisdom  in  the  constitution 
of  things.  Free  forces  are  so  offered  to  men, 


PRODUCTION.  101 

that,  if  they  avail  themselves  fully  of  those,  they 
cannot  fail,  the  necessary  moral  conditions  being 
supplied,  to  rise  continually  in  the  scale  of  com- 
forts, in  the  power  to  command  through  exchange 
the  satisfaction  of  their  wants. 

The  personal  motives,  that  lead  men  to  avail 
themselves  in  a  higher  and  higher  degree  through 
implements  of  the  help  of  natural  agents,  are  to 
l-e  found,  partly  in  a  natural  love  of  invention, 
and  partly  in  considerations  that  grow  out  of 
value.  Some  men  are  born  with  a  knack  for  con- 
trivance ;  others  seem  to  develop  this  later  in  life ; 
and  many  are  never  so  happy  as  when  trying  to 
invent  something,  or  to  improve  upon  some  inven- 
tion already  made.  In  almost  all  cases,  these 
efforts  look  towards  the  construction  of  some  ap- 
paratus to  use  for  productive  puposes  the  natural 
force  of  wind,  water,  steam,  electricity,  gravita- 
tion, friction,  or  some  other.  Doubtless,  in  most 
cases,  these  persons  think,  if  they  are  successful, 
there  will  be  pecuniary  profit  coupled  with  their 
invention,  although  to  secure  that  does  not  seem 
to  be  then?  main  impulse.  They  work  in  the  love 
of  it.  Many  others  work  at  inventions  out  of  a 
desire  to  make  them  immediately  profitable.  This 
is  particularly  true  of  men  engaged  in  the  manu- 
facturing of  fabrics  or  of  implements,  who  are 
subjected  to  intense  competition,  and  who,  if  they 
«an  bring  in  a  little  more  of  free  force  into  their 
processes,  will  have  at  least  a  temporary  advantage 
wver  their  rivals.  This  makes  it  necessary  to 


102  POLITICAL  ECONOMY. 

explain  how  improvements  act  upon  the  value  of 
those  things  produced  by  their  help. 

We  have  already  seen  how  competition  tends  to 
throw  down  the  value  of  every  thing  towards  the 
level  of  the  onerous  elements  concerned  in  its 
production,  so  that  men  cannot,  as  a  rule  and  for 
any  length  of  time,  sell  God's  gifts ;  it  is  a  con- 
sequence of  this,  that  the  value  of  every  thing 
whose  production  is  facilitated  by  improved  pro- 
cesses and  free  forces  tends  ultimately  to  decline 
relative  to  the  value  of  every  thing  whose  produc- 
tion is  not  equally  facilitated.  In  the  light  of 
this,  it  would  seem  at  first  sight,  as  if  there  would 
be  no  motive  on  the  ground  of  value  to  strive  for 
better  processes.  Nevertheless,  there  is  a  tem- 
porary state  of  things  after  an  improvement  has 
been  introduced,  say,  into  a  cotton-mill,  during 
which  the  old  price  may  be  obtained  for  a  product, 
which  now  costs  less  of  onerous  effort.  This  is 
the  motive  to  bring  in  the  improvement.  So  soon 
as  the  improvement  becomes  general  in  cotton- 
mills,  down  will  go  the  value  of  the  product  to  a 
new  level,  and  almost  at  once  after  the  first  intro- 
duction, there  will  be  a  motive  to  lower  the  price 
a  little,  so  as  to  get  a  better  market  and  undersell 
competitors,  but  so  long  as  the  process  is  confined 
to  that  mill  by  patent  or  otherwise,  there  will  be 
some  extra  gains  there,  sufficient  perhaps  to  reward 
the  inventor  for  his  time  and  toil,  and  to  become 
an  inducement  to  him  and  to  others  to  continue 
to  exercise  their  skill  as  inventors.  The  tendency 


PRODUCTION.  103 

of  secret  knowledge  is  to  become  known,  of  spe- 
cial processes  to  become  general,  of  patent  rights 
to  expire  and  be  infringed  on ;  and  so,  production, 
which  is  especially  open  by  double  motive  to 
invention,  becomes  a  kind  of  perpetual  contest, 
the  issue  of  which  is  always  favorable  to  common 
lights  and  lower  values. 

If  two  articles,  which  formerly  exchanged 
against  each  other,  are  now  both  produced 
through  improved  methods,  they  will  exchange 
against  each  other  still  at  the  old  rate,  provided 
both  improvements  release  an  equal  amount  of 
onerous  effort ;  and  if  they  do  not,  then  that  one 
will  buy  less  of  the  other,  whose  production  has 
been  most  facilitated  ;  while  both  will  buy  less  of 
money,  or  other  product,  that  has  remained  fixed 
in  the  conditions  of  its  production.  As  a  matter 
of  fact,  there  is  no  such  product,  though,  for  rea- 
sons to  be  given  hereafter,  gold  comes  nearer  to 
that  description  than  any  thing  else.  This  con- 
cludes oui  direct  discussion  of  Natural  Agents. 

The  second  requisite  of  production  is  LABOR. 
Labor  t.i  any  human  exertion  that  demands  something 
for  itself  in  exchange.  Every  person  puts  forth 
more  or  less  of  muscular  and  mental  effort  with- 
out any  expectation  of  a  return  for  it.  This  is 
not  labor.  Nothing  is  labor  that  does  not  look  to 
a  sale  ;  and  we  are  excused  by  the  definition  from 
the  old  discussion  about  "  productive  "  and  "  un- 
productive "  labor.  All  labor  is  productive  in  fact 
or  in  intention.  If  I  watch  all  night  with  a  sick 


104  POLITICAL  ECONOMY. 

neighbor,  I  put  forth  an  effort  irksome  in  itself, 
but  done  in  kindness  with  no  thought  of  a  return. 
That  is  not  labor.  I  write  for  pay  an  article  in 
the  newspaper  with  half  the  expenditure  of  vital 
force  of  the  night's  watching :  that  is  labor.  The 
mistress  employs  her  powers  of  body  and  mind  for 
two  hours  in  dressing  herself  for  a  party ;  that  is 
not  labor.  Her  servant-girl  gives  a  languid  inter- 
est, and  lends  an  occasional  hand,  to  the  process : 
that  is  labor.  It  is  not  the  kind  of  exertion,  it  is 
not  the  degree  of  the  exertion,  it  is  not  the  length 
of  time  during  which  the  exertion  is  put  forth, 
that  constitutes  effort  to  be  labor ;  but  it  is  the 
end  for  which  the  effort  is  put  forth.  Labor,  like 
every  thing  else  in  Political  Economy,  is  tested  by 
the  criterion  of  a  sale.  The  only  seal  used  in  this 
science  is  the  seal  of  the  market. 

A  large  part  of  the  labor  of  the  world  is  what 
may  be  called  physical  labor,  that  is,  the  exertion 
is  primarily  muscular,  and  is,  in  fact,  the  moving 
of  materials  or  implements  with  reference  to  a  cer~ 
tain  result.  In  all  cases,  some  action  of  mind  is 
required  to  do  this  successfully ;  probably  the  in- 
ferior animals  could  not  be  trained  to  do  it  at  all, 
though  dogs  do  sometimes  churn  under  supervision ; 
yet  the  main  thing  furnished  by  the  laborer  is  mus- 
cular motion  more  or  less  regular  and  constantly 
repeated ;  and  it  is  in  consequence  of  this  feature 
of  it,  that  the  substitution  of  machinery  in  its 
place  has  already  gone  so  very  far,  and  is  destined 
to  go  much  farther.  Machinery  can  only  be  made 


PRODUCTION.  105 

to  perform  regular  motions ;  and  therefore  it  can 
only  be  made  a  substitute  for  labor  in  so  far  as 
that  labor  furnished  a  series  of  more  or  less  regu- 
lar motions.  Horse-power  now  saws  the  wood  at 
our  railroad  station,  where  Pat  and  Mike  and  Jim 
used  to  saw  it,  because  all  that  is  required  in 
either  case  is  motion  to  bring  the  saw  in  contact 
with  the  wood. 

So  it  is  in  spinning  and  weaving  and  printing 
and  drilling.  Machinery  can  be  made  to  do  won- 
ders, but  it .  cannot  be  made  to  think.  All  ma- 
chinery, the  simplest  and  the  most  complex,  re- 
quires human  intelligence  to  guide  it.  So  far  as 
the  work  was  a  mere  recurrence  of  motions,  ma- 
chinery may  come  in  to  relieve  muscle ;  so  far  as 
it  was  adaptation  to  circumstances,  adjustment  in 
exigencies,  the  human  mind  must  be  there  as  be- 
fore. The  introduction  of  machinery  has  lessened 
the  demand  for  the  simplest  form  of  labor,  while 
it  has  doubtless  increased  the  demand  for  labor  in 
general.  The  cheapening  of  individual  products 
through  freer  processes  has  enlarged  the  demand 
for  them,  has  multiplied  the  number  of  them,  has 
even  increased  the  aggregate  value  of  them,  and 
while  fewer  laborers  are  needed  at  one  point  of 
the  process,  more  are  needed  at  other  and  more 
complex  points  of  the  process.  I  have  never  seen 
the  point  made  before,  but  I  will  venture  the 
assertion,  that  the  whole  tendency  of  things  is  to 
drive  laborers  into  places  requiring  more  and  moie 
of  intelligence  and  skill.  The  lowest  places, 


106  POLITICAL  ECONOMY. 

where  laborers  have  swarmed  for  agess  are  being 
occupied  more  and  more  by  labor-saving  appli- 
ances, and  laborers  are  now  wanted  to  tend  these 
machines,  to  market  the  goods,  to  watch  and  wait 
and  judge,  in  short,  to  render  services  requiring 
intelligence  and  will,  rather  than  those  requiring  a 
succession  of  motions  mainly. 

For  labor  is  of  various  grades,  and  is  paid  for 
accordingly  at  very  various  rates.  Mr.  Hugh  J. 
Jewett  received  as  president  of  the  Erie  Railway 
$40,000  a  year  as  stated  salary.  Few  men  can 
bear  the  burdens  that  he  bore  in  that  capacity. 
The  French  painter,  Meissonier,  received  150,000 
francs  in  1867  for  a  single  picture,  "  A  Charge  of 
Cavalry,"  now  in  a  private  gallery  in  Cincinnati ; 
and,  more  recently,  300,000  francs  for  the  u  Battle 
of  Friedland."  These  are  works  of  genius,  but 
they  are  also  fruits  of  labor;  and  in  wondering  at 
their  price,  we  musf  not  lose  sight  of  the  years  of 
toil  in  preparing  for  and  painting  them,  of  the 
money  paid  for  costumes  and  accessories,  and  of 
the  hire  of  models,  and  so  on.  Before  Meissonier 
painted  his  picture  of  Napoleon  III.  at  Solferino, 
he  made  a  journey  to  Italy  expressly  in  the  way 
of  ]>  reparation,  and  another  to  Vienna,  to  make 
researches  and  get  hints  for  his  picture  of  the 
meeting  of  the  emperors  Napoleon  III.  and  Fian- 
cis  Joseph  at  Villafranca.  The  truth  is,  lhat  tin 
Btudies  and  labors  of  one's  whole  life  are  a  needed 
preparation  for  any  really  great  work,  and  the  ex- 
traordinary compensation  that  sometimes  awaits 


PEODUCTION.  107 

the  completion  of  such  a  wort,  whether  of  an  in« 
ventor  like  Prof.  Morse,  of  an  engineer  like  De 
Lesseps,  of  an  artist  like  Horace  Vernet,  or  of  an 
author  like  Charles  Dickens,  is  really  the  reward 
of  a  long  series  of  otherwise  unremunerated 
efforts.  From  the  lowest  forms  of  manual  labor, 
as  the  stone-breaker's  and  the  wood-sawyer's,  tD 
the  highest  efforts  of  professional  genius,  as  the 
piano-playing  of  Liszt  and  the  legal  plea  of 
O'Conor,  is  indeed  a  long  way,  and  the  interval  is 
filled  up  full  with  every  variety  of  personal  ser- 
vices rendered  for  pay,  but  the  extremes  and  the 
means  are  all  alike  labor,  and  it  is  difficult  to  make 
any  classification  in  this  case,  because  the  at- 
tempted classes  are  sure  to  grade  into  each  other. 

A  rude  classification  of  labor  may  bo  made  into 
common,  skilled,  and  j^ofessional  labor.  Common 
labor  is  that  which  can  be  acceptably  performed 
by  an  ordinarily  competent  person  after  a  little 
instruction  and  practice  without  any  thing  corre- 
sponding to  an  apprenticeship  as  a  preliminary. 
Farm  laborers,  railroad  laborers,  'longshoremen, 
teamsters,  porters,  miners,  and  many  more,  belong 
to  this  class.  Wages,  which  are  the  remuneration 
of  labor,  are  the  lowest  and  steadiest  in  this  class, 
because,  owing  to  the  ease  with  which  the  class 
can  be  recruited  at  any  time  from  growing  boys 
and  immigrating  foreigners,  the  supply  is  kopt 
constantly  large  relatively  to  the  demand.  It  is 
time  to  remind  ourselves  again,  that  values  spring 
out  of  Desires  and  Efforts.  Wages  are  a  form 


108  POLITICAL  ECONOMY. 

of  values,  their  peculiarity  being  that  they  are 
received  for  a  personal  service  rendered,  and  not 
for  a  commodity  or  claim  rendered.  The  personal 
service  may  be  incorporated  into  a  commodity,  or 
it  may  not;  that  makes  no  difference  so  far  as  the 
labor  and  its  wages  are  concerned ;  Meissonier 
received  his  commission  from  the  emperor  to  paint 
the  "  Solferino,"  and  his  labor  was  embodied  in  a 
commodity  that  belonged  to  the  emperor  so  soon 
as  it  was  done,  and  what  he  was  paid  for  was  his 
personal  service  as  a  painter ;  on  the  other  hand, 
Parepa  Rosa  was  paid  a  large  sum  for  an  evening's 
singing,  and  her  service  had  no  connection  with 
any  commodity.  All  labor  is  offered  over  against 
some  desires  of  other  men,  and  wages  are  the 
response  to  that  appeal.  It  is  easy  to  point  out 
the  maximum  of  wages :  it  is  the  point  at  which 
the  labor-takers  will  sooner  forego  the  labor  than 
give  any  more  for  it:  It  is  easy  also  to  point  out 
the  minimum  of  wages :  it  is  the  point  at  which 
the  labor-givers  will  sooner  forego  wages  alto- 
gether than  take  any  less  wages. 

Between  these  extremes  marked  out  by  the 
intensity  of  the  desires  on  both  sides,  the  rate  of 
wages  will  fluctuate  back  and  forth  according  to 
circumstances.  There  are  a  great  many  j  ersons 
in  all  countries  who  desire  such  services  as  com- 
mon laborers  can  render,  and  are  able  to  pay  for 
them  at  a  moderate  rate  only,  since  their  desires 
are  not  intense  nor  their  means  very  ample. 
There  are  everywhere  common  desires  for  comforts 


PRODUCTION.  109 

and  ordinary  gain,  just  as  there  are  often  intense 
desires  for  distinction  and  for  extraordinary  gains. 
Common  laborers,  being  numerous  for  the  reason 
already  given,  compete  with  each  other  to  secure 
the  wages  thus  offered  by  those  who  desire  their 
services.  In  many  cases,  these  services  could  be 
and  would  be  dispensed  with,  if  a  high  rate  of 
wages  was  demanded.  Under  these  circumstances, 
u  general  market-rate  of  wages  for  common  labor 
is  determined  —  an  equalization  of  demand  and 
supply  is  had  —  and  the  rate  is  always  moderate, 
because  the  service  of  the  labor-givers  has  few 
elements  of  scarcity  or  difficulty  about  it,  and  be- 
cause the  return  service  of  the  labor-takers  is  not 
proffered  under  the  impulse  of  unusually  strong 
desires.  Of  course,  a  market-rate  thus  established 
is  liable  to  change  from  time  to  time,  being  higher 
in  flush  times  and  lower  in  dull  times,  but  on  the 
whole  steadier  than  the  wages-rates  in  the  higher 
departments  for  reasons  soon  to  be  given.  I  know 
of  no  guiding  principle,  other  than  these  general 
ones,  which  determines  in  any  country  the  rate 
of  wages  of  common  labor.  The  number  of  the 
laborers  is  of  course  an  element,  the  general  pros- 
perity and  hopefulness  of  employers  is  another 
element,  and  the  amount  and  productiveness  of 
capital  is  still  another  element,  but  this  has  moie 
immediately  to  do  with  the  wages  of  the  next 
class  to  be  considered  in  a  moment. 

The  wages  of  skilled  laborers,  namely,  of  those 
who  have  had  to  pass  through  something  equiva- 


110  POLITICAL  ECONOMY. 

lent  to  an  apprenticeship  in  order  to  be  able  to 
offer  their  services,  offer  some  points  of  difference 
from  those  of  common  labor.  In  the  first  place, 
their  numbers  are  fewer,  because  comparatively 
few  parents  can  afford  to  give  their  children  the 
time  and  the  money  needful  for  them  to  learn  a 
trade,  or  to  become  skilful  in  any  art  requiring 
education ;  and,  as  a  result  of  this,  their  wagea 
will  rule  higher  than  common  wages,  because  the 
press  of  competition  will  be  less  felt  among  them, 
and  because,  being  more  intelligent  and  conse- 
quently mobile,  they  can  better  insist  on  their 
claims,  and  can  better  distribute  themselves  to 
points  where  their  services  are  in  demand.  In  the 
second  place,  they  are  more  likely  to  be  subject 
.  to  a  strong  demand  than  common  laborers  are,  on 
account  of  the  close  connection  of  their  labor  with 
special  accumulations  of  capital. 

We  must  here  anticipate  the  discussions  of  fol- 
lowing paragraphs  so  far  as  to  say,  that  capital  is 
the  aggregate  of  all  products  reserved  as  a  means 
for  further  production  ;  that  accumulations  of  cap- 
ital are  in  their  very  nature  a  standing  demand  for 
laborers  ;  that  buildings,  machinery,  raw  materials, 
and  all  the  appliances  of  manufactures  of  all  sorts, 
are  a  special  demand  for  skilled  laborers,  because 
they  alone  can  run  this  machinery,  work  up  these 
materials,  and  make  these  whole  investments  of 
capital  profitable  to  their  owners ;  that  the  more 
capital  of  all  kinds  invested  in  branches  of  indus- 
try requiring  skilled  laborers  to  carry  them  on,  the 


PRODUCTION.  113 

stronger  the  motive  of  the  owners  to  employ  the 
laborers,  inasmuch  as  no  profit  comes  from  idle 
investments,  but  rather  a  constant  loss  besides  the 
loss  of  profit ;  and  that,  in  consequence  of  all  this, 
the  rate  of  wages  of  skilled  laborers  is  sure  to  bo 
higher  than  that  of  common  laborers,  and,  as  capi- 
lal  increases  and  business  is  prosperous,  is  likely 
to  become  still  higher  and  relatively  constant. 
Many  forms  of  capital  are  more  immediately 
dependent  upon  skilled  laborers  than  upon  com- 
mon, and  there  is  often  a  competition  among 
employers  for  such  laborers,  and  in  profitable 
times  they  cccupy  an  enviable  position,  capital 
being  dependent  upon  them  for  its  profit  and  in- 
crease. At  the  same  time,  common  laborers  will 
share  to  a  lower  degree  with  skilled  in  the  benefits 
of  a  prosperous  ongoing  of  the  various  industries. 
They  are  adjuncts  to  all  mills,  factories,  and  enter- 
prises. The  more  products  created  in  the  higher 
departments  the  more  work  to  be  done  in  the 
lower  departments.  Even  domestic  servants  feel 
the  influence  in  a  rise  of  wages  of  a  general  and 
continued  prosperity  of  capital.  Still,  it  remains 
true,  that  such  prosperity  affects  more  immediately 
and  largely  the  wages  of  skilled  laborers.  The 
interdependence  of  labor  and  capital,  and  the  cor- 
dial relations  that  should  always  subsist  between 
them,  will  be  better  displayed  after  we  understand 
better  the  nature  and  forms  of  capital. 

Professional  labor  is  the  highest  form  of  personal 
services  rendered  for  pay,  because  it  involves  the 


112  POLITICAL  ECONOMY. 

most  of  time  and  expense  in  the  way  of  prepara- 
tion, because  it  is  most  often  connected  with  high 
natural  abilities  and  genius,  and  because  for  these 
reasons  it  receives  the  highest  remuneration.  It 
is  not  pretended  that  a  sharp  line  can  be  drawn 
between  professional  and  skilled  labor,  any  more 
than  between  .skilled  and  common  labor,  and  we 
do  not  confine  the  adjective  "professional"  to 
what  used  to  be  called  the  three  learned  profes- 
sions, theology,  medicine,  and  law.  We  mean  by 
professional  labor  the  services  of  those  who  have 
received  a  technical  education  (not  an  apprentice- 
ship) expressly  to  fit  them  to  render  these  services, 
and  who  have  the  requisite  character,  talents,  and 
genius  to  enable  them  to  succeed.  Clergymen, 
physicians,  lawyers,  literary  men,  artists,  actors, 
and  many  more,  render  professional  services  loosely 
so  called.  The  obstacles  at  the  entrance  to  this 
path,  occasioned  by  the  lack  either  (1)  of  appro- 
priate natural  gifts,  or  (2)  of  the  requisite  industry 
and  character,  or  (3)  of  the  means  of  a  suitable 
education  and  training,  practically  exclude  so 
many  persons,  that  the  competition  in  the  higher 
walks  of  professional  life  is  not  such  as  to  prevent 
a  large  remuneration  for  services  rendered.  Com- 
paratively few  men  reach  a  high  point  of  excel- 
lence in  their  respective  professions,  and  they 
have  in  consequence  what  may  be  called  a  natural 
monopoly  in  these  fields  of  effort,  and  receive  for 
their  labor  a  very  high  rate  of  wages. 
The  competition  in  the  professions  would  be 


PRODUCTION:  118 

less  than  it  is,  if  men  entered  upon  them  solely 
on  economical  grounds,  and  if  the  needed  educa- 
tion had  to  be  fully  paid  for  as  other  things  are 
paid  for ;  as  it  is,  the  respectability  which  attends 
them,  the  desire  of  knowledge  for  its  own  sake 
which  is  gained  in  connection  with  them,  the 
instruction  wholly  or  in  part  gratuitously  offered 
to  those  in  course  of  preparation  for  them,  and  the 
desire  to  do  good  which  actuates  many  who  enter 
upon  them,  all  these  increase  more  or  less  the  com- 
petition in  professional  labor.  It  may  be  worth 
while,  just  in  passing,  to  note,  that  moral  conside- 
rations mingle  in  with  the  economical  much  more 
in  the  higher  than  in  the  lower  walks  of  effort, 
although  we  are  concerned  with  the  moral  consid- 
erations merely  as  they  bear  upon  the  economical. 
For  example,  we  are  concerned  with  the  clergy- 
man's salary,  with  the  services  he  renders  for  pay, 
but  we  may  note  the  fact  that  there  are  more 
clergymen  than  there  would  be,  if  the  pay  were 
the  only  motive  to  enter  the  ministry,  especially 
as  the  moral  motive  influences  in  turn  the  amount 
of  the  pay.  So,  too,  the  underlying  character  of 
a  man,  except  so  far  as  it  may  affect  the  accept- 
ableness  of  his  paid-for  services,  is  economically  a 
matter  of  indifference ;  but  then  there  are  some 
services,  like  those  of  ^he  preacher,  the  teacher, 
the  treasurer  of  corporations,  and  others  involving 
great  trust,  which  depend  so  directly  upon  moral 
character,  that  we  are  bound  to  observe  the  points 
of  contact,  especially  again  as  the  comparatively 


114  POLITICAL  ECONOMY. 

Bmall  number  who  have  all  the  other  requisites 
for  such  trusts  is  still  further  reduced  by  the  em- 
ployers insisting  upon  the  additional  quality  of  a 
character  recognized  to  be  good,  which  scruple 
undoubtedly  enhances  the  pay  of  the  few  who 
have  all  the  required  qualities.  Character,  how- 
ever, it  must  be  insisted,  though  it  has  its  points 
of  contact  with  things  to  be  sold,  stands  on  ground 
very  distinct  from  them.  Skill,  for  instance,  is 
acquired  to  sell ;  character,  if  genuine,  is  main- 
tained for  its  own  sake,  and  will  never  compromise 
itself  for  the  sake  of  gain. 

It  must  be  added,  in  explanation  of  the  high 
wages  of  professional  labor,  that  the  demand  is 
often  peculiarly  intense,  as  well  as  the  supply 
peculiarly  limited.  If  great  interests  of  property, 
of  reputation,  or  of  life  are  at  stake,  it  is  felt  that 
the  best  men  to  secure  these  must  be  had  at 
almost  any  price.  Fees  and  rewards  for  services 
of  great  delicacy,  of  great  difficulty,  or  great  dan- 
ger, are  paid  by  individuals  and  corporations  and 
nations  without  grudging.  Persons  able  to  confer 
an  exquisite  pleasure,  particularly  if  the  pleasure 
can  be  conveyed  to  a  great  many  persons  equally 
at  the  same  time,  by  oratory,  reading,  singing, 
playing,  acting,  and  so  on,  secure  extraordinary 
returns  for  their  efforts.  Beecher,  Dickens,  Gush- 
man,  Lind,  Rubenstein,  Rachel,  will  occur  to 
every  one  as  illustrations. 

Labor  is  effort  put  forth  in  the  way  of  exchange, 
and  is  equally  honorable  whether  common,  skilled, 


PRODUCTION.  115 

or  professional.  Indeed,  at  bottom,  there  is  but 
one  class  of  laborers.  Our  superficial  classification 
has  been  used  for  convenience  merely.  Political 
Economy  makes  no  radical  distinctions  as  between 
its  toilers,  offers  a  fair  field  for  all  according  to 
their  abilities,  and  has  its  "  well-done  "  for  the 
patient  husbandman,  the  ingenious  mechanic,  and 
the  eloquent  advocate  alike.  Labor  is  blessed ; 
but  let  uo  exchanger  trifle  with  private  morals, 
with  the  public  health,  or  with  the  revenues  of 
his  country.  Even  Science,  while  claiming  all 
its  own  field,  may  deprecate  infringements  in  its 
name  upon  the  neighboring  fields. 

"  God  speed  the  ship  !  —  But  let  her  bear 

No  merchandise  of  sin, 
No  groaning  cargo  of  despair 

Her  roomy  hold  within. 
No  Lethean  drug  for  Eastern  lands, 

Nor  poison-draught  for  ours; 
But  honest  fruits  of  toiling  hands 

And  Nature's  sun  and  showers." 

This  is  the  place  to  explain  briefly  what  politi- 
cal economists  mean  by  the  Division  of  Labor. 
The  phrase,  which  is  the  title  of  the  first  and 
most  famous  chapter  in  Adam  Smith's  Wealth  of 
Nations,  was  not  very  aptly  chosen,  though  it  has 
become  a  settled  phrase  in  our  science,  and  its 
meaning  is  the  dividing  up  of  a  complex  process'  or 
employment  into  particular  parts  in  such  a  way  that 
each  person  employed  may  devote  himself  wholly  to 


116  -         POLITICAL  ECONOMY. 

one  section  of  the  process.  The  proposition  is,  that 
by  this  division,  the  labor  of  each  person  becomes 
more  efficient  and  the  production  as  a  whole  more 
profitable.  This  must  be  so,  because  different 
persons  have  varying  aptitudes  according  to  natu- 
ral gifts  and  previous  training.  It  is  one  of  the 
grand  things  about  exchange  in  general,  that  it 
gives  room  for  every  kind  of  talent,  for  every 
degree  of  strength,  for  every  variety  of  accom- 
plishment the  result  of  training,  for  every  sort  of 
service  which  all  sorts  of  men  are  able  to  render. 
Nature  speaks  through  all  this  variety  of  gifts  and 
opportunities,  in  as  loud  a  voice  as  she  can  utter, 
in  favor  of  the  freest  possible  exchanges  among 
men  everywhere,  since  thus  only  can  these  re- 
markable diversities  be  fully  utilized  to  their  pos- 
sessors and  to  the  world. 

The  doctrine  of  the  division  of  labor  is  only 
a  particular  application  of  this  general  truth. 
Within  any  single  branch  of  production,  there  are 
usually  parts  and  possible  divisions  of  the  process. 
If,  now,  different  persons  are  put  to  these  differ- 
ent parts  of  the  work  according  to  their  strength, 
ingenuity,  acquired  skill,  and  power  to  organize 
and  command,  it  is  plain,  that  the  work  will  be 
far  more  cheaply,  easily,  and  rapidly  done,  than  if 
the  operatives  had  to  pass  from  one  part  to  anoth- 
er, and  all  try  to  learn  all  the  parts.  Under  divi- 
sion of  labor,  the  easier  parts  may  be  performed 
by  women  and  children,  whose  labor  is  less  ex- 
pensive; the  ruder  parts  by  ruder  and  cheaper 


PBODUCTION.  117 

hands;  and  only  the  more  difficult  and  delicate 
parts  by  the  more  skilful  and  expensive  'vorkraen. 
Adam  Smith  illustrates  the  division  of  labor  by 
the  manufacture  of  pins,  as  that  was  carried  on  in 
his  day.  One  man  draws  out  the  wire,  another 
straightens  it,  a  third  cuts  it,  a  fourth  sharpens  the 
points,  a  fifth  grinds  it  at  the  top  for  receiving  the 
head ;  the  making  the  heads  consists  of  two  or 
three  distinct  operations,  each  confided  to  a  single 
person;  the  remaining  processes  are  similarly 
divided  up,  and  the  result  is,  that  in  a  single  es- 
tablishment, employing  only  ten  persons,  48,000 
pins  are  made  in  a  day,  while  if  each  man  went 
through  all  the  processes  himself,  he  could  hardly 
make  20  pins  a  day,  or  200  for  the  whole  estab- 
lishment. Of  English  watch-making  by  hand, 
there  are  said  to  be  102  distinct  branches,  to  each 
of  which  a  boy  may  be  put  apprentice,  and  when 
his  time  is  out  be  unable  to  work  at  any  other 
branch  without  further  instruction,  the  watch-fin- 
isher being  the  only  one  able  to  work  in  other 
departments  than  his  own.  If  my  readers  will 
take  the  opportunity  to  visit  any  factory  working 
cotton,  wool,  wood,  or  metals,  and  observe  for 
themselves  the  acquired  skill,  the  rapidity  of 
movement,  the  economy  in  tools,  and  the  cheap- 
ness from  classification,  under  the  division  of  labor, 
they  will  be  more  impressed  than  any  words  of 
mine  can  impress  them  by  its  economical  advan- 
tages. 

A  summary  of  these  advantages  may  be  put  at) 
follows ;  — 


118  POLITICAL  ECONOMY. 

1.  The  improved  dexterity,  corporeal  and  intel 
ectual,  acquired  by  the  repetition  of  one  simple 
operation,  instead  of    many  operations   consecu- 
tively. 

2.  The  saving  of  time  lost  in  passing  from  one 
kind  of  work  to  another,  and  in  the  change  of 
position  and  tools. 

3.  The  invention  of  improved  implements  and 
processes,  because  a  simple  task  is  just  what  ma- 
chinery can  be  made  to  perform,  and  just  what  an 
operative  with  his  mind  on  it  is  likely  to  devise 
machinery  for. 

4.  The  saving  of  the  waste  of  materials,  partly 
as  the  result  of  the  improved  dexterity,  and  part- 
ly as  the  result  of  the  shorter  time  required  to 
finish  up  the  product. 

5.  The  more  economical  distribution  of  labor  by 
classing  the  operatives  according  to  their  strength, 
tastes,  skill,  and  costliness. 

6.  The   saving  in  tools,  which,  being  now  in 
constant  use  and  thus  yielding  a  better  return  on 
their  cost,  can  be  afforded  of  a  better  quality. 

7.  The  division  of  labor  between  the  wholesale 
and  retail  trades  brings  producers  and  consumers 
into  safer  relations,  through  a  better  understand- 
ing of    the  local  markets,   and   a    consequently 
better  control  of  the  various  streams  that  feed  the 
wholesale  leservoirs. 

I  think  there  are  some  disadvantages  resulting 
from  a  division  of  labor  :  — 
1.  The    work   in    some    departments   becomes 


PRODUCTION.  119 

monotonous  and  irksome  from  its  simplicity,  while 
some  diversity  of  employment  would  afford  relief 
by  calling  out  different  muscles,  or  different  facul- 
ties of  the  mind. 

2.  There  is  some  tendency  to  dwarf  the  mental 
and  corporeal  powers,  through  exclusive  attention 
to  one  part  only  of  a  complicated  process. 

3.  A  person  has  less  power  to  adapt  himself  to 
a  change  of  circumstances,  and  becomes  more  de- 
pendent  on   the    continuance   of  the   business  in 
that  form,  after  he  has  learned  and  long  made  the 
means  of  a  livelihood  a  single  part  of  a  process, 
than  if  more  versatility  had  been  allowed  him. 

The  degree  to  which  the  division  of  labor  can 
be  carried,  depends  (1)  upon  the  extent  of  the 
market,  and  (2)  upon  the  nature  of  the  employ- 
ment. For  example,  if  the  market  will  not  take 
48,000  pins  a  day,  the  division  of  labor  cannot  be 
carried  so  far,  some  of  the  ten  persons  must  be 
discharged,  or  else  they  will  remain  idle  a  part  of 
the  time,  some  of  the  separate  parts  will  be  com- 
bined, and  each  pin  will  cost  more  than  before 
from  the  limitation  of  the  market.  The  other 
expedient  sometimes  adopted  under  a  dull  marke  t, 
of  working  but  half  or  three-quarters  time  and 
endea\  iring  to  keep  up  full  division  of  labor  dur- 
ing  the  shortened  hours,  is  apt  to  take  on  the 
other  form  or  be  combined  with  it,  inasmuch  as  it 
is  difficult  to  hold  a  full  complement  of  hands  to 
a  considerable  period  of  short  hours.  In  either 
case,  production  becomes  less  efficient  from  the 


120  POLITICAL  ECONOMY. 

limitation  of  the  market.  Limitation  of  the 
market  is  itself  usually  caused  either  (1)  by  some 
miscalculation  about  the  kind  of  goods  the  mar- 
ket will  take  at  that  time,  or  (2)  by  some  arti- 
ficial restrictions  on  trade  shutting  up  a  market 
otherwise  open,  or  (3)  by  some  use  of  an  inferior 
money  which  never  fails  to  bring  in  as  a  sequel 
commercial  dulness  and  disaster.  Under  free- 
dom, a  universal  limitation  of  the  market  is  im- 
possible; since  the  desires  of  men,  which  the 
efforts  of  other  men  can  satisfy,  are  ever  active 
and  increasing ;  and  since  the  efforts  of  men  in 
production  may  find  a  scope  and  a  market,  until 
these  desires  of  all  men  are  all  met,  —  which  can 
never  possibly  happen.  Production,  accordingly, 
is  most  profitable  when  the  market  is  broad 
enough  to  allow  a  full  division  of  labor,  and  full 
employment  during  all  the  usual  or  legal  hours 
of  work ;  and,  the  market  being  presupposed,  is 
more  likely  to  be  profitable  in  large  establish- 
ments than  in  small,  because,  (1)  the  division  of 
labor  can  be  carried  to  a  fuller  extent ;  (2)  more, 
and  more  perfect,  machinery  can  be  afforded ;  (3) 
relatively  less  superintendence  is  required ;  and 
(4)  the  scraps  and  ends  of  a  large  business  may 
justify  one  or  more  subordinate  branches  in  con- 
nection with  the  main  business.  On  the  other 
hand,  there  is  a  counter-working  principle  in  favor 
of  small  establishments,  that  these  are  usually 
owned  anc  managed  by  individuals  instead  of  a 
company,  and  that  the  "  zeal  of  limited  owner 


PRODUCTION".  121 

ship  "  in  its  economy  and  painstaking  fidelity  is 
sometimes  more  than  a  match  for  the  otherwise 
superior  advantages  of  great  corporations,  which 
have  to  be  served  by  hired  agents  exclusively. 

The  nature  of  the  employment  also  limits  the 
dogree  to  which  the  division  of  labor  can  be  ap- 
plied. Agriculture,  for  example,  because  its  pro- 
cesses cannot  be  made  simultaneous,  can  never 
allow  of  this  division  so  much  as  most  other  forms 
of  production.  The  farmer,  more  than  most 
others,  lias  to  wait  upon  Nature.  No  effort  of  his 
can  bring  the  reaping-time  nearer  to  the  sowing- 
time.  He  himself  must  learn  to  do  all  the  parts 
of  farm-work  in  succession.  We  have  already 
learned  the  reason  why  machinery  can  never  be 
applied  in  agriculture  to  the  same  extent  as  in 
manufacturing,  much  as  that  fact  discredits  the 
etymology  of  the  word  manufacture;  and  we  have 
also  learned  that  the  law  of  diminishing  returns 
applies  to  all  agriculture  everywhere.  These  three 
facts,  taken  together,  furnish  the  ground  for  the 
important  truth,  that  agricultural  products  tend 
constantly  to  rise  in  value  as  compared  with  other 
commodities. 

The  third  and  last  requisite  of  production  is 
CAPITAL.  This  word,  which  is  derived  from  the 
Latin  word  Caput,  a  head  or  source,  carries  along 
with  it  always  the  meaning  of  its  root.  How- 
ever otherwise  defined,  the  word  always  implies 
that  that  denoted  by  it  is  a  source  of  further 
production.  The  common  word  cattle,  and  the 


122  POLITICAL  ECONOMY. 

law  term  chattels,  are  both  derived  from  the  same 
root,  though  they  do  not  hold  so  distinctly  as 
capital  does  the  root-signification.  I  give,  with 
much  confidence  that  it  will  be  found  to  cover  all 
the  cases,  the  following  definition :  —  Capital  is 
any  valuable  thing,  outside  of  man  himself,  from 
nhose  use  springs  a  pecuniary  increase  or  proft. 
Capital  itself  is  always  a  product,  and  its  nature 
as  capital  is  conferred  on  it  by  the  determination 
of  its  owner  to  use  it  for  the  sake  of  an  increase 
to  come  by  means  of  it.  Many  products  are 
devoted  to  the  gratification  of  present  desires, 
without  any  reference  to  the  rendering  of  future 
services  by  means  of  their  help.  Such  products 
are  not  capital.  They  are  valuable,  but  capital 
they  are  not.  Capital  is  a  smaller  class  under  the 
great  class  Values.  Capital,  too,  must  never  be 
confounded  with  personal  powers,  although  the 
boundary  between  the  two  is  hopelessly  confuted 
by  the  definitions  of  Mr.  Carey  and  Mr.  Macleod. 
Personal  powers  are  only  brought  into  the  world 
of  value  through  Labor,  and  the  reward  of  labor 
however  skilful  is  Wages,  and  wages  are  a  return 
for  the  exercise  of  personal  powers  through  labor, 
and  not  an  increase  secured  by  means  of  them.  The 
primary  notion  of  capital  is  lacking  in  any  proper 
\  low  of  personal  powers,  or  their  exercise  for  pay ; 
and  hence,  I  do  not  hesitate  to  say,  that  capital  is 
always  either  a  commodity  or  a  claim,  since  these 
alone  can  be  reserved  as  a  source  of  further  pro- 
duction. Personal  powers  cannot  be  sold,  becauss 


PRODUCTION.  123 

they  cannot  be  parted  with  ;  their  exercise  through 
labor  may  be  sold,  and  this  is  wages;  but  each 
renewed  exercise  of  them  through  labor  must  be 
paid  for  independently,  that  is,  fresh  wages  may 
be  received,  the  labor  is  worth  so  much ;  but  in  all 
this,  we  do  not  get  beyond  the  idea  of  a  return^ 
while  it  is  essential  to  capital  that  it  have  the 
power  of  increase. 

When  it  is  said  that  a  young  man's  integrity,  or 
his  acquired  skill,  is  his  capital,  the  word  is  used 
in  a  metaphorical,  not  in  a  scientific  sense.  The 
meaning  is,  that  these  qualities  are  like  capital  in 
some  respects.  Capital  can  always  be  parted  with, 
and  become  fruitful  in  the  hands  of  another,  unless 
the  owner  prefer  to  retain  it  himself  for  further 
use  in  production.  As  an  example  of  all  this, 
take  a  steam-engine  in  a  lumber-mill ;  the  owner 
can  sell  it  any  day,  if  he  choose,  for  $1,000 ;  if  he 
sell  it,  that  $1,000  is  a  simple  return,  which  indeed 
he  may  transform  into  capital  by  loaning  it  out  at 
interest,  or  by  buying  another  steam-engine  with 
it  for  his  own  use ;  but  if  he  choose  to  retain  the 
first  engine,  it  is  because  he  expects  something 
additional  to  the  $1,000  from  the  use  of  it ;  he 
expects,  perhaps,  to  gain  $100  net  for  the  use  of 
it  for  a  year,  and  then  to  be  able  to  seil  it  for 
$1,000,  or,  if  he  wear  it  out  by  use,  to  gel  in  con- 
sequence of  its  use  not  only  his  $1,000  back,  but 
a  yearly  profit  additional.  This  illustrates  tlio 
nature  of  capital,  and  affords  a  correct  definition 
of  the  term  profit.  Profit  is  the  increase  from  the 
use  of  capital. 


124  POLITICAL  ECONOMY. 

As  capital  is  a  product  to  start  with,  it  cannot 
be  said  to  be,  as  labor  is,  an  absolutely  essential 
requisite  to  production,  but  production  can  go  on 
but  a  very  little  way  without  capital  in  some  form, 
as  we  shall  see  shortly,  and  so  it  is  proper  to  affirm 
that  the  three  requisites  of  production  are  natural 
\\ gents,  labor,  and  capital.  It  is  the  intention  of 
the  owner  that  transforms  a  simple  product  into 
capital.  As  a  product,  he  can  sell  it  at  will,  use 
the  return  for  the  gratification  of  the  wants  of 
his  family,  or  in  gifts  of  benevolence ;  but  if  he 
chooses  instead  to  employ  it  as  a  help  in  further 
production,  if  he  abstains  from  the  present  enjoy- 
ment of  it,  or  its  proceeds,  if  he  saves  it  for  the 
sake  of  a  future  increase  of  its  value,  he  trans- 
forms it  at  once  into  capital.  You  cannot  tell  by 
the  looks  of  a  thing  whether  it  is  capital  or  not : 
that  depends  upon  the  use  to  which  it  is  to  be  put. 
The  origin  of  all  capital,  accordingly,  is  in  absti- 
nence ;  and  the  reward  of  this  abstinence  is  profit. 
The  amount  of  capital  in  any  community  depends 
upon  the  foresight  and  frugality  of  the  people,  — 
depends  upon  their  willingness  to  forego  the 
present  enjoyment  of  their  values  for  the  sake  of 
greater  values  to  be  had  in  the  time  to  come.  It 
Is  a  good  thing  for  every  man  to  lay  by  something, 
if  possible,  in  the  form  of  capital,  either  to  use 
liimself  in  his  business,  or  to  loan  out  to  others  on 
interest ;  not  only  a  good  thing  for  him  personally, 
and  for  his  family,  but  for  the  community  as  well, 
since  the  economical  progress  of  any  community, 


PBODUCTION.  125 

and  especially  the  rate  of  wages  paid  to  laborers 
within  it,  depend  very  much  on  the  accumulations 
of  capital  there.  The  strength  of  the  motives  to 
abstinence  will  be  the  strongest  where  liberty  of 
action,  equality  of  privileges,  and  security  of  prop- 
erty are  the  greatest. 

It  will  be  profitable  for  us  to  go  over  the  prin- 
cipal forms  which  capital  assumes  as  an  aid  to 
further  production.  First,  Implements.  We  have 
seen  that  there  are  obstacles  in  the  way  of  the 
gratification  of  human  desires  in  all  directions, 
and  that  these  obstacles  are  only  overcome  by 
human  effort.  When  a  man  devotes  himself  to 
one  class  -of  these  obstacles,  with  a  view  to  sur- 
mount them,  he  will  quickly  discover  that,  if  he 
had  certain  tools,  his  work  would  be  easier.  Man 
is  not  like  the  beaver,  which  gnaws  down  the  tree 
with  its  teeth  from  generation  to  generation,  but 
when  he  came  to  have  occasion  to  fell  trees,  some- 
thing of  the  nature  of  an  axe  suggested  itself  to 
his  mind.  Once  thought  of,  he  would  try  to  in- 
vent, or  induce  others  to  invent,  an  axe.  Whether 
of  flint,  or  shell,  or  metal,  so  soon  as  any  thing 
was  devised  that  made  easier  the  labor  of  felling  a 
tree,  capital  made  a  beginning  along  that  line  of 
obstacles.  The  first  axe  was  a  product  of  labor 
and  abstinence.  The  labor  bestowed  in  making  it 
might  have  been  bestowed  on  objects  of  present 
giatification,  but  it  was  bestowed  rather  on  some- 
thing whose  only  use  was  to  make  easier  future 
production.  It  was  capital.  Perhaps,  among  the 


126  POLITICAL  ECONOMY. 

more  giifced  races,  progress  in  the  way  of  tools  was 
more  rapid  than  we  are  wont  to  think  it  was,  for 
we  read  that  Tubal-cain,  even  in  the  times  before 
the  .flood,  "  hammered  all  kinds  of  implements  out 
of  copper  and  iron."  *  The  motive  in  inventing 
tools  has  always  been  the  same,  namely,  to  lessen 
some  irksome  effort  which  is  the  condition  of  a 
given  satisfaction.  This  gives  the  key-note  to  the 
universal  use  and  indefinite  expansion  of  this  form 
of  capital.  Natural  agents,  which  are  free,  and 
whose  power  is  indefinitely  great,  are  made  avail- 
able in  production  only  through  implements  which 
are  created  by  labor,  and  which,  being  retained  as 
an  aid  to  future  labor,  are  capital. 

Witness  the  plough,  the  axe,  the  water-wheel, 
the  stea  n-engine,  the  electric-machine,  and  a 
thousand  more.  Every  implement,  from  the 
tiniest  needle  to  the  most  ponderous  engine, 
avails  itself  of  natural  powers  in  order  to  make 
production  easier,  increases  satisfactions  relatively 
to  efforts,  is  itself  a  product  retained  for  the  sake 
of  an  increase  to  its  own  value  to  come  by  means 
of  it,  in  short,  is  capital.  Since  it  takes  tools  to 
make  tools,  and  the  new  tools  assist  in  making 
others,  and  since  the  motive  to  lessen  onerous 
human  effort  by  the  substitution  of  Nature's  forces 
is  universal,  there  is  a  tendency,  which  facts  ex- 
emplify, to  a  rapid  progress  in  the  number  and 
perfection  of  the  implements  and  machinery  of 

1  Gen.  iv.  22.  The  rendering  in  King  James' 3  Bible  is  very 
imperfect. 


PRODUCTION.  127 

productioi;  and  because  capital  in  this  form  al 
ways  brings  gratuitous  natural  forces  into  service, 
the  value  of  those  things  produced  by  the  aid  of 
much  capital  tends  to  decline  as  compared  with  the 
value  of  other  things,  in  whose  production  capital  less 
conspires. 

Second,  Raw  materials.  These  are  accumulated 
with  sole  reference  to  their  being  wrought  up  by 
means  of  labor  and  machinery  into  more  valuable 
forms.  Production  looks  to  an  increase  in  their 
value  by  a  change  in  their  form.  Wool  is  raw 
material  to  the  woollen  manufacturer,  though  it  is 
completed  product  to  the  wool-grower ;  and  cotton 
is  raw  material  to  the  cotton-spinner,  though  it  is 
completed  product  to  the  planter.  Cloth  is  raw 
material  to  the  tailor,  and  lumber  to  the  cabinet- 
maker, and  coal  to  all  who  use  steam-engines  in 
production.  These  materials,  and  many  more,  are 
destroyed  as  such,  to  re-appear  directly  or  in- 
directly in  higher  forms  of  value. 

Third,  Buildings  used  for  productive  purposes. 
These  are  erected  to  facilitate  the  processes  of 
production,  and  their  cost  is  expected  to  re-appear 
with  a  profit  in  the  value  of  the  products  to  which 
they  minister.  They  include  factories,  warehouses, 
stores,  shops,  offices,  and  so  on.  These  do  not 
stand  in  their  own  right,  so  to  speak,  they  stand 
in  the  right  of  the  commercial  services  rendered 
by  means  of  their  aid.  They  are  strictly  capital, 
as  a  man's  dwelling-house  is  not,  because  he  builds 
that  to  live  in,  not  to  trade  in. 


128  POLITICAL  ECONOMY. 

Fourth,  Permanent  improvements  in  land.  Land 
originally  costs  nothing.  It  is  a  Natural  Agent, 
the  same  as  wind,  or  water.  But  permanent  bet- 
terment1* in  land  are  an  investment  made  not  sim- 
ply in  view  of  a  return,  but  also  in  view  of  a  per- 
manent profit,  which  in  the  end,  together  with  the 
improved  land,  shall  be  more  in  value  th:m  the 
investment.  Owing  to  cheaper  and  better  methods 
of  subduing  land  constantly  introduced,  old  in- 
vestments of  this  kind  do  not  generally  yield  a 
present  profit,  although  they  may ;  still,  in  inten- 
tion and  nature,  they  are  capital. 

Fifth,  Investments  in  aid  of  locomotion,  as  in 
railroads,  canals,  ships,  and  eveiy  thing  subsidiary 
to  these.  All  such  things  as  these  are  capital,  if 
they  are  constructed  with  a  view  to  pecuniary 
profit.  The  market- wagon,  for  instance,  is  capital, 
while  the  pleasure-yacht  is  not.  The  amount  of 
capital  invested  in  the  United  States  in  railroads 
alone,  if  it  could  be  exactly  ascertained,  as  it  cannot 
be,  would  weary  the  very  figures  that  expressed 
it,  to  say  nothing  of  the  minds  that  strove  dis- 
tinctly to  conceive  of  it.  Much  of  this  capital  has 
been  at  times  "  sleeping."  According  to  "  Poor's 
Railroad  Manual"  the  bonded  debts  of  the  rail- 
roads of  the  United  States,  Jan.  1,  1875,  were 
$2,000,000,000,  of  which,  40  per  cent  had  been 
more  or  less  in  defaults  after  the  panic  of  1873. 
This  statement  takes  no  account  of  the  original 
"stock,"  or  other  debts,  of  the  roads.  Notwith- 
fctanding  these  losses  of  profit,  and,  in  many  cafies, 


PRODUCTION.  129 

of  the  entire  investment,  this  form  of  capital  is 
intimately  associated  with  all  commercial  pros- 
perity. Transportation  is  an  essential  part  of  pro- 
duction, since  the  value  of  things  depends  almost 
as  much  upon  where  they  are,  as  upon  what  they 
are.  1880  was  a  great  year  for  new  railroads. 

Sixth,  Products  on  hand  for  sale  and  bought  for 
resale,  and  products  loaned  or  retained  to  loan. 
These  require  no  explanation  or  remark. 

Seventh,  Most  funds  destined  for  wages.  Some 
wages,  as  those  of  most  domestic  servants,  for 
example,  are  paid  with  no  reference  to  an  ultimate 
profit,  but  most  wages  are  paid  out  for  the  pro- 
duction of  something,  which  is  itself  to  be  resold 
for  an  increase  upon  its  cost.  Such  a  product, 
whether  made  for  sale  or  bought  for  resale,  is 
always  capital,  and  so,  consequently,  are  the  wages 
paid  for  producing  it,  as  well  as  the  raw  materials 
entering  into  it. 

Eighth,  The  national  money.  We  have  not  yet 
learned  the  nature  and  forms  of  money,  as  we 
shall  try  to  do  hereafter  with  painstaking  exact- 
ness, but  we  shall  now  assume  what  we  shall  then 
prove,  that  a  nation's  money  is  a  product  acquired 
just  as  other  products  are,  that  its  value  comes 
and  goes  under  the  same<  laws  as  theirs,  and  that 
it  is  an  instrument  absolutely  necessary  to  any 
considerable  development  of  exchanges.  Because 
money  is  an  instrument  for  making  production 
easier,  it  is  capital ;  because  it  is  "  a  valuable 
thing,  outside  of  man  himself,  from  whose  uso 


130  POLITICAL  ECONOMY. 

springs  a  pecuniary  increase,"  it  comes  exactly 
under  our  definition.  Because,  as  we  shall  see, 
money  measures  values,  and  becomes  a  temporary 
store  for  them,  as  well  as  helps  exchange  them,  it 
is  able,  as  capital,  to  help  production  in  a  great 
many  ways.  It  is  a  kind  of  generalized  capital. 
A  steam-engine  can  only  work  in  one  place,  and 
a  power-loom  can  only  do  one  thing,  and  all  other 
forms  of  capital  are  restricted  in  the  possible  help 
they  can  render  to  production ;  but  money  can 
make  itself  felt,  anywhere,  can  work  in  all  sorts 
of  harness,  can  buy  materials,  pay  wages,  trans- 
port products,  hold  in  itself  values  and  gains  till 
they  are  wanted,  migrate  anywhere,  become  all 
things  to  all  men.  The  nation  retains  its  money 
for  all  these  profitable  uses.  To  the  nation  at 
large,  therefore,  all  its  money  is  capital.  In  the 
hands  of  individuals,  however,  some  money  may 
be  temporarily  non-capital,  because  it  maybe  spent 
for  gratification  merely.  In  the  hands  of  the 
next  man,  it  may  become  capital  again.  As  a 
whole,  in  its  relations  to  the  nation  and  the  world, 
money  is  the  most  active,  the  most  versatile,  the 
most  profitable,  and  the  most  enduring,  of  all 
forms  of  capital ;  and  no  nation,  consequently, 
can  afford  even  for  a  day  to  have  its  money  ID 
respect  of  material,  weight,  or  fineness,  inferior 
to  the  best  possible.  The  reasons  that  weigh  in 
favor  of  the  best  possible  machinery  of  all  kinds, 
weigh  with  tenfold  weight  in  favor  of  the  best 
possible  form  of  the  most  important  implement  in 
production  —  money. 


PRODUCTION.  131 

We  will  now  look  at  the  distinction  commonly 
made  between  Fixed  and  Circulating  capital,  and 
draw  from  it  two  or  three  points  of  considerable 
consequence.  That  part  of  the  whole  capital,  the 
returns  for  which  are  derived  at  once  and  once  for 
all,  is  circulating  capital;  while  the  rest  and  by 
much  the  larger  part,  the  returns  for  which  come  lit- 
tle by  little  from  the  use  rather  than  sale  of  the  prod- 
uct, is  fixed  capital.  Professor  Bascom1  gives  a 
good  illustration  of  the  difference  :  "  Tools  in  the 
hands  of  him  who  uses  them  are  Fixed,  in  the 
hands  of  him  who  manufactures  them,  Circulating, 
Capital."  Take  another  illustration :  If  we  should 
go  into  a  shoe-shop,  among  many  other  things  we 
should  see  leather,  thread,  and  pegs ;  we  should 
also  see  lasts,  hammers,  and  needles :  the  first  three 
are  only  capable  of  one  use  in  that  form,  and  the 
returns  for  them  accordingly  as  raw  materials  must 
wholly  come  from  the  sale  of  those  shoes  into  which 
these  materials  have  entered;  while  the  second 
three  are  capable  of  repeated  use,  and  the  returns 
for  them  need  only  come  in  driblets  from  the  sale 
of  all  the  shoes  in  succession  to  whose  make-up 
they  have  in  turn  contributed.  If  the  reader  will 
now  turn  back  two  or  three  pages,  he  will  find  a 
chance  to  apply  this  distinction  to  all  of  the  eight 
forms  of  capital  enumerated,  and  may  thus  famil- 
iarize himself  with  the  difference  between  Fixed 
and  Circulating  capital. 

As  industry  proceeds*  and  the  aggregate  of  capi- 

1  Bascom's  Political  Economy,  p.  71. 


132  POLITICAL  ECONOMY. 

tal  enlarges,  there  is  a  tendency  to  an  increase  of 
fixed  capital  relatively  to  circulating ;  and  the  old- 
er and  more  industrially  developed  countries  show 
this  disproportion  strikingly  in  comparison  with 
new  countries,  in  which  for  a  time  the  value  of  the 
circulating  capital  surpasses  that  of  the  fixed. 
Gradually,  however,  the  terms  are  reversed,  and 
Mr.  Carey  estimated  that  at  the  middle  of  the 
nineteenth  century  circulating  stood  to  fixed  in 
France  as  1  to  8,  and  in  the  United  States  as  3  to 
5.  In  advanced  countries  this  growing  dispropor- 
tion between  the  two  would  become  greater  than 
it  actually  does  become,  were  it  not  that  almost  all 
forms  of  fixed  capital  are  subject  to  a  rapid  loss  of 
value,  due  partly  to  wear  and  tear,  and  partly  to 
the  natural  progress  of  improvements  by  which 
what  is  old  soon  becomes  antiquated.  In  nothing, 
perhaps,  is  actual  cost  of  production  so  useless  a 
guide  to  present  value  as  in  machinery  and  other 
forms  of  fixed  capital.  Old  machinery  always 
sells  low,  and  so  usually  do  old  factories,  ware- 
houses, and  other  buildings  used  for  productive 
purposes. 

Two  points  of  practical  caution  grow  out  of  all 
this :  of  which  the  first  is,  that  industrial  investors 
and  operators  should  always  inquire  beforehand 
whether  the  sale  of  then?  circulating  capital  be 
likely  to  be  able  to  pay  the  interest  on  the  fixed  cap- 
ital at  a  given  price  or  estimate,  as  well  as  all  the 
expenses  of  current  production,  and  a  fair  profit  in 
addition.  The  second  point  is,  that  forms  of 


PRODUCTION".  133 

capital  are  sometimes  pushed  forward  too  rapidly 
for  the  general  interests  of  production.  For  in- 
stance, the  manufacturer  must  not  put  too  much 
of  his  current  income  into  new  mills  and  machine- 
ry, for  fear  the  irsidue  will  not  be  sufficient  to 
buy  raw  materials  with,  and  pay  wages  and  taxes 
with.  Multitudes  of  promising  enterprises  have 
foundered  on  this  very  rock.  The  circulating  cap- 
ital is  the  circulating  blood  of  business  bodies ; 
and  there  must  not  be  too  many  bodies  as  com- 
pared with  the  blood  that  gives  them  life  and  keeps 
them  warm.  Railroads,  for  example,  are  often 
built  too  fast  and  too  far  as  compared  with  the 
business  that  alone  can  sustain  them :  and  stock- 
holders and  even  bondholders  find  that  too  much 
of  their  circulating  capital  has  passed  into  pres- 
ently unavailable  forms.  Fixed  capital  is  good, 
and  its  healthful  increase  essential  to  the  ongoing 
of  exchanges ;  but  the  maxim  "  Make  haste  slowly  " 
is  peculiarly  applicable  to  it  in  comparison  with 
the  growth  of  circulating  capital  which  ought  to 
precede  and  justify  it. 

In  passing  we  put  in  a  plea  for  Peace  by  calling 
attention  to  the  fact  that  the  vast  expenses  of  war 
are  mainly  a  destruction  of  capital.  War  cannot 
be  carried  on  for  any  length  of  time  or  to  any 
great  extent  except  by  means  of  property  existing 
in  the  form  of  capital.  Savings  previously  loaned 
out,  or  otherwise  used  productively,  are  the  sources 
whence  war-supplies  are  drawn;  the  capital  as 
such  is  absolutely  destroyed  in  the  war ;  the  war- 


134  POLITICAL  ECONOMY. 

debt  remaining  is  only  a  memorial  of  this  destruc- 
tion, and  an  obligation  resting  upon  somebody  to 
create  new  capital  with  which  to  replace  the  old. 

Next  we  notice  the  wonderful  power  of  capi- 
tal in  reproduction.  Everybody  knows  how 
soon  even  the  ordinary  interest  of  money,  if 
regularly  compounded  with  the  principal,  will 
double  that  principal.  Capital  breeds  capital. 
The  rate  of  interest  is  usually  reckoned  by  the 
year,  but  the  rate  of  profit  may  be  reckoned  by 
the  day,  the  week,  the  month,  or  by  shorter  irreg- 
ular intervals.  Mr.  Samuel  Hooper,  a  Massachu- 
setts merchant,  once  shipped  goods  to  China  cost- 
ing in  Boston  $8,000 :  he  sold  these  goods  in  the 
port  of  destination  for  $50,000,  and  invested  this 
sum  in  goods  there  for  shipment  to  the  United 
States ;  and  this  return  cargo  was  sold  in  Boston 
for  $100,000.  What  was  his  rate  of  profit  ?  Dis- 
carding the  other  expenses  of  the  voyages,  and 
supposing  them  to  have  occupied  a  year's  time, 
his  rate  of  profit  was  1250  per  cent  per  annum, 
that  is,  the  ratio  of  his  investment  to  his  return 
was  1  to  12.50. 

Mr.  Macleod  mentions  some  interesting  facts  as 
exhibited  in  the  retail  provision  trade  of  Paru: 
many  years  ago,  the  money  lenders  charged  the 
petty  dealers  two  sous  a  week  for  the  loan  of  three 
francs  :  that  is  interest  at  the  rate  of  173  per  cent 
per  annum  :  but  if  the  dealer  sold  his  three  francs' 
worth  of  victuals  for  three  franos  and  a  half  every 
day,  as  is  likely,  his  profit,  omitting  Sundays, 


PEODUCTION.  135 

would  be  at  the  rate  of  5216  per  cent  per  annum : 
only  a  few  years  ago,  a  member  of  the  Legislative 
Assembly  said  in  a  speech,  that  a  five-franc-piece 
borrowed  in  the  morning  would  buy  provisions 
that  might  be  sold  in  the  course  of  the  day  for 
eight  francs;  that  25  centimes  were  paid  in  the 
evening  without  complaint  as  the  interest  on  the 
money ;  and  that  is  at  the  rate  of  1800  per  cent 
per  annum,  while  the  rate  of  profit  is  21,600  per 
cent  per  annum,  or  twelve  times  the  rate  of  inter- 
est. All  these  instances  are  exceptional,  but  they 
illustrate  the  better  the  nature  of  capital  to  grow. 
Even  at  a  very  small  ratio  of  profit  to  principal 
on  each  transaction,  a  money  capital  turned  rap- 
idly over  accumulates  with  a  startling,  almost 
incredible  rapidity.  Hence  the  excellent  maxim, 
Quick  sales  and  small  profits. 

Equally  wonderful  is  the  power  of  capital  in 
the  form  of  machinery  to  hasten,  facilitate,  and 
accumulate  production.  Even  now,  grain  may  be 
loaded  every  day  in  the  year  at  any  one  of  the 
interior  railroad  stations  in  the  great  North-west 
of  the  Union,  and  be  offered  for  sale  in  New  York 
within  fifteen  days,  or,  if  the  foreign  market  be 
preferred,  be  offered  in  Liverpool  in  fifteen  days 
more.  The  saving  of  small  sums  for  directly  pro- 
ductive uses,  or  for  loaning  out  to  such  uses,  by 
many  persons  at  the  same  time,  is  the  secret  of 
the  increase  of  the  national  riches ;  and  savings- 
banks  under  secure  conditions  cannot  be  too 
highly  commended,  which  gather  up  the  dribleta 


136  POLITICAL  ECONOMY. 

of  capital,  pay  interest  on  them  to  the  owners, 
and  then  loan  out  to  productive  operators  on  good 
security  in  considerable  sums  these  savings  of  the 
people. 

As  countries  become  older  and  more  prosperous, 
and  capital  in  all  its  forms  accumulates,  there  is  a 
strong  tendency  in  the  rate  of  profit  to  decline. 
This  is  proved  by  experience,  and  might  perhaps 
be  inferred  from  the  law  of  Supply  and  Demand. 
The  rate  of  interest,  which,  though  always  less 
than  the  current  rate  of  profit,  is  a  correct  gauge 
of  that  rate,  has  pretty  steadily  fallen  for  cen- 
turies in  England  and  Holland,  and  has  fallen 
already  in  the  older  parts  of  the  United  States  as 
compared  with  the  newer.  The  British  govern- 
ment paid  the  Bank  of  England  8  per  cent  inter- 
est on  a  public  loan  less  than  two  centuries  ago : 
it  now  pays  the  same  institution  but  3  per  cent. 
Some  important  consequences  follow  from  this 
decline.  One  is,  that  laborers  as  a  class  are  mere 
benefited  by  all  increase  of  capital  than  are  capi- 
talists as  a  class.  As  the  rate  of  profit  goes  down 
as  a  result  of  the  increase  of  capital,  a  smaller 
share  of  the  proceeds  of  every  hundred  of  capital 
invested  goes  to  the  capitalist,  and  a  larger  rela- 
tive share  to  the  laborer,  since  the  two  between 
them  share  the  whole  proceeds,  taxes  excepted. 
There  is  still  a  motive  to  save,  aggregate  profits 
are  larger  than  before  though  the  rate  is  less,  capi- 
talists as  a  class  are  better  off  than  before ;  'out 
laborers  as  a  class  are  relatively  still  better  off 


PRODUCTION.  137 

than  before,  for  if  less  goes  to  the  capitalist  and 
more  to  the  laborer  on  every  hundred  and  there 
are  more  hundreds  than  ever,  of  course  relatively 
more  goes  to  the  laborers  from  the  increase  of 
capital  than  to  the  capitalists  themselves !  This 
is  a  lever,  my  readers  will  thankfully  observe, 
that  lifts  on  the  masses  of  men  !  Another  impor- 
tant consequence  is,  that  the  value  of  things  pro- 
duced by  the  help  of  much  capital  will  decline  with 
the  decline  of  the  rate  of  profit  relatively  to  things 
produced  by  the  help  of  less  capital  and  more  labor. 
That  is  to  say,  the  creation  of  new  capital,  and 
the  fall  in  the  rate  of  profit,  will  make  cheaper, 
relatively  to  a  money  standard,  to  agricultural 
products,  to  all  other  products  in  which  capital 
less  conspires,  and  especially  to  labor  in  which 
capital  does  not  conspire  at  all,  all  those  products 
produced  by  the  help  of  more  capital.  Let  it  not 
escape  the  penetration  of  anybody,  that  the  great 
underlying  forces  of  production  are  no  respecters 
of  persons,  but,  like  their  Author,  work  unseen 
for  the  elevation  of  all  men. 

It  will  not  take  us  long  now  to  determine  the 
elements  of  the  COST  OP  PRODUCTION.  This 
phrase  is  not  relevant  as  applied  to  personal  ser- 
vices merely,  or  to  claims,  but  only  to  commodities 
produced  by  labor  hired  or  estimated  as  hired  and 
by  conspiring  capital.  For  example,  a  managing 
editor  would  not  ask  an  editorial  writer  about  the 
cost  of  production  of  his  article,  nor  the  buyer  of 
a  railroad  bond  inquire  after  the  cost  of  production 


J38  POLITICAL  ECONOMY. 

of  that  bond,  —  the  phrase  would  have  no  meaning 
as  applied  to  these,  —  but  it  would  be  very  rele- 
vant as  applied  to  a  case  of  boots  offered  at  whole- 
sale, indeed,  in  most  cases,  it  would  be  the  element 
determining  the  value.  Now,  natural  agents  are 
free,  and  only  labor  and  capital  are  paid  agents  in 
production.  Something,  it  is  true,  has  to  go  in 
the  way  of  taxes,  but  these  can  be  disregarded 
for  the  present.  The  onerous  elements  in  pro- 
duction are  two,  labor  and  capital,  that  is,  effort 
and  abstinence,  and  both  are  irksome,  and  if  we 
can  find  out  what  the  elements  of  these  are  as 
bought,  we  shall  know  all  the  elements  of  the  cost 
of  production,  and  this  will  be  in  all  relevant 
cases  the  exact  measure  of  what  we  have  called 
the  Effort  in  contradistinction  from  the  Desire. 
Sometimes  two  things,  both  of  which  have  a  true 
cost  of  production,  exchange  against  each  other, 
and  very  often  all  things  exchange  against  metallic 
money,  which  also  has  a  true  cost  of  production, 
and,  therefore,  in  determining  the  elements  of 
this,  we  go  a  good  way  into  the  very  heart  of 
value. 

Cost  of  labor  is  made  up  of  three  elements 
Always ;  —  (1)  Efficiency  of  the  labor,  and  (2) 
The  rate  of  nominal  wages  paid,  and  (3)  The  cost 
to  the  employer  of  that  in  which  the  wages  are 
paid.  To  illustrate  ;  —  If  an  employer  hire  two 
men  at  the  same  wages,  and  one  is  twice  as  efficient 
a  laborer  as  the  other,  the  cost  of  his  labor  is  one- 
half  less  than  the  cost  of  the  other's  labor ;  or,  if 


PRODUCTION.  139 

the  employer  accustomed  to  pay  one  dollar  per 
day  is  now  obliged  to  pay  one  dollar  and  a  half 
per  day,  the  efficiency  of  the  laborers  being  now 
considered  the  same,  the  cost  of  labor  is  increased 
in  the  ratio  of  2  to  3 ;  or,  if,  nominal  wages  and 
efficiency  of  labor  remaining  the  same,  the  cost  ol 
that,  whether  money  or  other  product,  in  which 
wages  are  paid,  varies,  the  cost  of  labor  varies  of 
3ourse.  If  nations  unwisely,  as  the  United  States 
did  in  1862-1879,  use  a  depreciated  paper  money, 
that  is,  substitute  for  a  true  commodity  a  credit- 
claim  because  it  is  cheaper,  then  the  rate  of 
nominal  wages  ceases  to  be  any  correct  indica- 
tion of  the  cost  of  labor,  and  hence  of  the  cost 
of  production.  The  above  analysis  flings  to  the 
winds  a  host  of  conclusions  drawn  by  superficial 
writers  from  differences  as  between  different 
countries  in  the  rate  of  wages.  Rate  of  wages  is 
not  cost  of  labor.  It  is  only  one  element  in  a  cost 
of  labor.  There  may  be  a  very  great  difference 
in  the  rate  of  wages  as  between  England  and  the 
United  States,  for  example,  and  no  difference  at 
all  in  the  cost  of  labor,  or  even  the  cost  of  labor 
may  be  the  least  in  the  country  in  which  the  rate 
of  wages  is  the  highest,  on  account  of  the  superior 
efficiency  of  the  labor  there,  or  the  cheapness  of 
the  medium  in  which  wages  are  paid  there.  These 
three  elements  of  the  cost  of  labor  must  always  be 
borne  in  mind  in  all  discussions  about  wages, 
otherwise  the  arguments  will  be  fallacious  of  course, 
the  word  "  wages  "  in  such  discussions  sometimes 


140  POLITICAL  ECONOMY. 

meaning  "  rate  of  wages  "  and  sometimes  "  cost  of 
labor," — two  very  different  senses  of  the  same 
word ;  and  persons  attempting  productive  enter- 
prises of  magnitude,  particularly  those  coming 
into  competition  with  similar  enterprises  abroad, 
cannot  safely  neglect  this  analysis,  although  the 
uuperior  efficiency  of  labor  in  this  country  probably 
more  than  neutralizes  the  higher  rate  of  wages  so 
far  as  "cost  of  labor  "  is  concerned. 

Cost  of  capital  is  made  up  of  three  elements 
also ;  —  (1)  The  rate  per  cent,  and  (2)  The  time 
for  which  the  capital  is  advanced,  and  (3)  The 
form  of  the  capital  as  liable  to  wear  out  quickly 
or  otherwise.  To  illustrate  these  elements  in 
their  order,  let  us  suppose  the  rate  per  cent  at 
Amsterdam  to  be  3,  and  the  rate  at  New  York  to 
be  7,  the  cost  of  labor  to  be  equal  in  the  two  cities, 
the  time  of  advance  one  year,  and  no  liability  of 
the  capital  to  wear  out,  then  a  commodity  made 
at  Amsterdam  with  an  outlay  of  $100  can  be  sold 
without  loss  for  $103,  while  a  similar  commodity 
made  in  New  York  cannot  be  sold  for  less  than 
$107,  —  the  rate  per  cent  of  capital  being  an 
important  element  in  the  cost  of  capital  and  hence 
in  the  cost  of  production ;  now,  let  the  same  sup- 
positions be  continued,  except  that  the  time  of 
advance  in  New  York  be  extended  to  four  years, 
then  the  Dutch  product  will  sell  as  before  at  $103, 
but  the  New  York  product  for  not  less  than  $131, 
—  the  time  of  advance  making  a  striking  difference 
in  the  cost  of  capital,  giving  a  sort  of  monopoly 


PRODUCTION.  141 

in  enterprises  requiring  large  capital  and  long 
periods  before  returns  are  realized  to  low-interest 
countries;  lastly,  suppose  two  establishments,  in 
each  of  which  is  invested  a  capital  of  $11,000,  in 
one  of  which  is  a  machine  costing  $1000,  which 
will  be  wholly  worn  out  by  one  year's  use,  and 
in  the  other  a  machine  costing  the  same,  but 
lasting  ten  years,  and  suppose  the  rate  per  cent 
be  10,  and  the  time  one  year,  then,  all  other  ele- 
ments being  equal,  the  commodity  made  in  the 
first  establishment  must  sell  for  $2100,  while  the 
commodity  made  in  the  second  can  sell  without 
loss  for  $1200,  —  so  important  an  element  is  dura- 
bility in  the  cost  of  capital  and  hence  in  the  cost 
of  production.  The  durability  of  metallic  money, 
as  the  most  important  form  of  capital,  is  one 
reason  why  countries  which  maintain  it  can  under- 
sell so  far  forth  the  countries  w.hich  abandon  it. 

Cost  of  production,  made  up  of  these  six  factors, 
is  a  vital  matter  in  all  interchange  of  commodities ; 
while  it  illustrates  the  necessity  of  forethought 
and  great  intelligence  in  order  to  successful  com- 
mercial activity,  that  all  these  factors  must  be 
constantly  attended  to,  and  efforts  be  constantly 
made  to  lessen  through  one  or  more  of  these  fac- 
tors the  cost  of  production  in  order  to  maintain  a 
firm  footing  in  competitive  enterprises.  The 
points  at  which  efforts  can  be  made  with  the  most 
success  to  lessen  the  cost  of  the  production  of 
commodities  are  (1)  to  make  the  efficiency  of 
labor  greater  by  helping  laborers  to  be  more  intel- 


142  POLITICAL  ECONOMY. 

ligent,  temperate,  industrious,  and  frugal ;  and 
(2)  to  lessen  the  time  of  advance  in  capital  by 
improved  methods  of  production  and  transporta- 
tion, so  as  to  make  returns  wait  as  quickly  as 
possible  upon  investments. 

I  fc  only  remains  in  this  elementary  discussion  of 
production,  to  call  attention  to  a  beautiful  gener- 
alization, which  gathers  up  and  holds  firmly  most 
of  the  results  to  which  we  have  already  come, 
namely,  The  value  of  finished  commodities  tends 
steadily  to  decline  towards  the  value  of  the  raw 
materials  out  of  which  they  are  formed.  This  is 
owing  to  a  constantly  lessened  cost  of  manufac- 
ture. The  lessened  cost  of  manufacture  is  owing 
to  an  increased  use  of  capital  in  the  form  of  im- 
proved machinery  for  transformation  and  trans- 
portation. The  increased  use  of  capital  is  owing 
to  the  habit  of  saying,  and  to  the  arts  of  inven- 
tion, by  means  of  which  free  powers  of  nature  are 
more  and  more  substituted  for  aching  human 
muscle.  The  result  is,  that  a  pound  of  raw  cotton, 
for  example,  is  approximating  the  price  of  the 
cotton  cloth  that  is  made  out  of  it,  —  less  and  less 
of  the  price  of  a  commodity  being  due  to  the 
process  of  producing  it  from  the  raw  material. 
This  great  tendency,  which  God  has  inwrought 
into  the  very  framework  of  things,  does  not,  in  a 
large  view,  harm  laborers  as  such,  who  have  some- 
times supposed  themselves  to  be  harmed  thereby, 
because  (1)  labor  is  always  required  for  the  con- 
struction and  repairs  of  all  labor-saving  appliances, 


PRODUCTION.  143 

and,  so  far  forth,  a  new  market  for  labor  is  opened 
up  in  place  of  any  loss  of  market  resulting  from 
their  introduction,  and  (2)  the  now  cheaper 
products  find  a  wider  circle  of  consumers,  and  now 
labor  is  required  to  produce  and  distribute  them, 
and  (3)  the  commodities  consumed  by  the  laborers 
themselves  are  also  cheapened  by  the  new  methods, 
and  a  given  rate  of  wages  secures  for  them  a 
higher  grade  of  comforts. 

The  following  summary  gathers  up  the  princi- 
pal propositions  of  the  present  chapter :  — 

1.  Value  is  a  result,  and  the  processes  leading  up 
to  it  are  PEODUCTION. 

2.  Production  is  getting  something  ready  to  SELL, 
and  selling  it. 

3.  Consumption   corresponds  to  Production,  and 
consists  in  BUYING  something. 

4.  Labor,  Natural  Agents,  and  Capital  are   the 
sole  REQUISITES  of  Production. 

5.  The  principal  natural  agent  is  LAND,  whose 
value  is  due  to  the  efforts  of  men. 

6.  Relatively   diminishing   RETURNS   accompany 
increasing  expenditures  upon  land. 

1.  People     increase     in     number,   and  food    in 
amount ;  but  the  race  will  be  WON  by  the  latter. 

8.  The  greatest  physical  thing  in  Production   is 
MOTION  ;  and,  as  free  natural  agents  are  more  used, 
production  grows  constantly  easier  to  men. 

9.  Labor   is   any   human   exertion   rendered  for 
PAY  :  this  pay  is  called  Wages. 

10.  The  higher  the  degree  to  which  the  Division 


144  POLITICAL  ECONOMY. 

OF  LABOR  is  carried,  the  more  profitable  does  the 
world 's  production  become. 

11.  Any  valuable  thing  reserved  for  future  use  in 
production  is  CAPITAL  ;  and  the  increase  that  comes 
from  that  use  is  called  Profit. 

12.  All  capital  is  comprised  under  eight  forms  ; 
and  these  are  distributed  into  FIXED  and  CIRCU- 
LATING capital. 

13.  Capital  breeds  capital ;  and  LABORERS  as  a 
class  are  more  benefited  by  this  than  capitalists  as 
a  class. 

14.  Cost  of  commodities  is  made  up  of  six  factors; 
and  production  both  demands  and  begets  INTELLI- 
GENCE. 

15.  The  value   of  commodities   steadily   declines 
towards  the  value  of  the  MATERIALS  out  of  which 
they  are  made. 


COMMERCE.  145 


CHAPTER  III. 

COMMERCE. 

IT  might  seem  as  if  the  mutual  benefit  of 
exchanges  were  sufficiently  demonstrated  in  the 
preceding  chapters,  which  unfold  their  nature  and 
processes.  There  are  always  two  parties  to  every 
exchange,  each  of  whom  has  something  and  wants 
something  else,  neither  of  whom  is  under  any 
obligation  whatever  to  part  with  what  he  has  for 
what  he  wants,  both  of  whom  are  in  the  very 
nature  of  the  case  the  best  judges  both  of  what 
they  have  and  of  what  they  want,  and  it  would 
certainly  seem  as  if,  so  long  as  it  is  a  matter  of 
pure  free-will  and  of  personal  advantage,  and  so 
long  as  the  public  morals,  health,  or  revenue,  are 
not  infringed  thereby,  they  might  be  allowed  to 
make  their  exchange  without  let  or  hindrance  on 
the  part  of  anybody.  The  liberty  to  exchange 
does  not  compel  anybody  to  exchange,  does  not 
recommend  anybody  to  exchange,  does  not  even 
bring  any  inducement  of  any  kind  to  lead  any- 
body to  exchange ;  it  simply  permits  those  to  ex- 
change whose  personal  advantage  in  their  best 


146  POLITICAL  ECONOMY. 

judgment  would  be  promoted  by  an  exchange, 
Common  sense  pronounces  in  favor  of  such  liberty. 
Political  Economy  pronounces  in  favor  of  such 
liberty.  But  some  governments,  and  notably  the 
government  of  the  United  States  at  present,  inter- 
fere  with  this  liberty,  practically  deny  the  right 
of  their  people  to  exchange  their  own  property 
for  other  forms  of  property  in  accordance  with 
their  own  best  judgment  of  their  own  advantage, 
and,  putting  up  legal  barriers  across  the  path  of 
exchange,  announce  pains  and  penalties  for  those 
who  presume  to  part  with  what  is  their  own  for 
the  sake  of  getting  thereby  what  they  want  more. 
This  action  of  governments,  particularly  of  our 
own,  makes  it  needful  for  us  to  examine  more 
definitely  still  into  the  nature  of  Commerce,  to 
investigate  the  alleged  reasons  for  restraining  it, 
and  to  vindicate  for  all  Exchange,  both  domestic 
and  foreign,  its  fair  and  natural  Opportunity. 

The  English  word  Commerce  is  commonly 
applied  to  exchanges  between  citizens  and  foreign- 
ers, but  there  is  nothing  in  the  origin  or  meaning 
of  the  word  that  should  so  restrict  its  significa- 
tion. It  is  derived  from  a  Latin  word,  which 
means  an  exchange  of  goods,  and  it  is  just  as 
proper  to  speak  of  domestic  commerce  as  of  for- 
eign commerce,  inasmuch  as  commerce,  no  matter 
who  the  parties  to  it  are,  is  essentially  one  and  the 
same  everywhere.  It  is  plain,  that  the  motives 
to  ar  exchange  and  the  gains  of  an  exchange  are 
precisely  the  same,  whether  the  parties  to  it  belong 


COMMEECE.  147 

to  the  same  nationality  or  are  of  different  nation- 
alities. The  accident  of  citizenship  is  a  very 
important  matter  in  -certain  relations,  but  it  is  a 
wholly  indifferent  matter  when  one  comes  to  buy- 
ing and  selling.  For  example,  I  happen  to  live 
in  the  north-west  corner  town  of  Massachusetts: 
two  miles  west  of  my  house  is  the  line  of  New 
York,  and  two  miles  north  of  my  house  is  the  line 
of  Vermont;  now,  does  it  make  any  difference) 
with  me  in  buying  butter  or  maple  sugar,  whether 
I  buy  them  of  a  New  York  neighbor,  of  a  Ver- 
mont neighbor,  or  of  a  Massachusetts  neighbor? 
Does  the  accident  of  state  lines  have  any  thing  to 
do  with  the  benefits  of  a  trade  ? 

I  can  assure  my  readers,  that,  as  a  matter  of 
fact,  nobody  in  this  locality  pays  any  attention  at 
all  to  these  lines  in  the  way  of  business.  Ver- 
monters  and  New  Yorkers  come  hither  and  go 
hence  in  traffic  just  as  freely  as  Massachusetts 
men  do,  and  exchange  with  them  is  just  as  profit- 
able on  both  sides  as  if  all  lived  in  one  state. 
"  But  all  do  live  in  one  nation,"  somebody  inter- 
poses. Verjr  true.  But  what  has  that  to  do  with 
it?  Shift  the  scene  from  the  south  end  to  the 
north  end  of  Vermont,  and  there  are  neighbors  on 
both  sides  of  an  imaginary  line,  who  do  not  live 
in  one  nation.  May  not  the  Canadians  and  the 
Vermonters  trade  freely  and  advantageously  across 
this  imaginary  line?  The  law  thunders,  No!  I 
was  reading  in  the  paper  this  very  day,  that  a 
Verinouter  bought  two  quarts  of  rum  across  tho 


148  POLITICAL  ECONOMY. 

line  to  help  him  through  his  haying,  and  was 
intercepted  on  his  return  by  the  revenue-officer, 
who  took  away  his  rum,  horse,  and  a  brand-new 
wagon!  I  do  not  approve  of  the  Vermonter's 
taste  in  buying  rum,  but  I  have  a  very  definite 
opinion,  and  shall  proceed  to  give  the  grounds  of 
it,  about  a  system  that  visits  penalties,  not  in  the 
interests  of  revenue,  for  trading  across  any  ima- 
ginary line. 

The  Constitution  of  the  United  States  goes  a 
good  way  towards  securing  the  benefits  of  a  free 
commerce  to  all  the  people  of  this  country.  It 
forbids  all  taxation,  by  national  as  well  as  by  state 
authority,  of  goods  in  passing  from  one  state  into 
another ;  and  it  secures  the  right  of  each  citizen 
of  a  state  to  sell  his  personal  services  of  every 
legal  kind  in  all  the  other  states  of  the  Union. 
These  two  provisions  secure  a  domestic  commerce 
absolutely  free ;  that  is  to  say,  no  state  can  tax 
goods  coming  into  it  from  another  state,  nor  tax 
citizens  of  other  states  as  such  on  the  exercise  of 
their  trades  within  that  state  ;  and  national  taxes, 
if  laid  within  the  country,  must  be  uniform 
throughout  the  United  States,  while  the  local 
taxes  of  the  states  may  make  no  discriminations 
either  as  to  persons  or  to  goods  found  within  their 
jurisdiction;  so  that,  throughout  the  wide  ex- 
pause  of  the  country  itself,  containing  great  diver- 
sities  of  soil,  climate,  industries,  and  experience, 
there  is  a  free  interchange  of  commodities,  ser- 
vices, and  claims,  possibly  subject  to  a  uniform 


COMMERCE.  149 

internal  taxation  by  the  nation,  state,  or  munici 
pality,  which  never  has  for  its  purpose  to  prevent 
or  lessen  the  exchanges,  but  only  to  draw  a  reve- 
nue out  of  their  gains,  which  revenue  is  the  larger 
as  the  gains  are  the  more  numerous.  All  this  is 
just  as  it  should  be.  Nobody  complains  that  the 
domestic  commerce  of  the  country  is  too  free ; 
nobody  desires  that  artificial  barriers  should  be  set 
up,  as  between  Louisiana  and  Massachusetts,  for 
example,  because  of  any  differences  in  age,  indus- 
tries, wages,  rate  of  profit,  or  the  like;  conse- 
quently, the  good  sense  of  the  people  of  the 
country  pronounces  emphatically  in  favor  of  free 
exchanges  within  the  country  itself.  Can  they 
consistently  do  this,  and  at  the  same  time  be 
opposed  to  free  international  exchanges  ? 

Moreover,  the  Constitution  of  the  United  States 
goes  further  in  the  direction  of  freedom.  It  ex- 
pressly forbids  any  tax  whatever  upon  articles 
exported  from  any  state.  It  thus  guarantees  not 
only  a  free  domestic  commerce,  subject  only  to 
the  claim  of  legitimate  taxation,  but  also  throws 
the  shield  of  its  defence  around  foreign  com- 
merce, so  far  as  all  exports  are  concerned.  The 
people  of  the  United  States  have  had  the  privi- 
lege for  a  hundred  years  of  carrying  out  of  the 
country  without  a  tax  any  of  their  surplus  prod- 
ucts for  which  they  could  find  a  market  anywhere 
in  the  world.  This  little  clause  of  the  Constitu- 
tion has  contributed  immensely  to  the  commercial 
prospn  ity  of  the  country ;  and  the  other  clauses, 


150  ,        POLITICAL  ECONOMY. 

already  referred  to,  securing  the  right  of  free  in- 
terchange at  home,  have  contributed  to  this  pros- 
perity still  more ;  but  all  these  have  been  more  01 
less  neutralized  by  the  abuse  of  another  clause  of 
the  Constitution  giving  Congress  the  power  "to 
lay  imposts,"  that  is,  the  power  to  tax  goods 
brought  into  the  country  from  other  countries. 
The  goods  carried  out  of  the  country  they  are 
forbidden  to  tax,  but  they  have  unlimited  power 
to  tax  at  their  discretion  imported  goods. 

It  is  true,  that  the  Constitution  prescribes  the 
purposes  for  which  these  taxes  must  be  laid, 
namely,  "to  pay  the  debts,  and  provide  for  the 
common  defence  and  general  welfare  of  the 
United  States ;  "  it  is  true  also,  that  this  language 
implies  that  these  taxes  are  to  be  laid  in  order  to 
get  money  to  fulfil  these  purposes  ;  but  it  has  been 
held  by  all  the  co-ordinate  branches  of  the  govern- 
ment, and  the  view  has  unfortunately  been  car- 
ried out  into  practice,  that  this  clause  authorizes 
Congress  to  lay  such  taxes  on  imports  as  shall 
lessen  and  even  prevent  their  introduction,  thus 
preventing  the  getting  of  money  from  these  taxes, 
which  would  seem  to  destroy  the  constitutional 
purpose  of  them.  I  believe  that  the  Constitution 
of  the  United  States,  fairly  interpreted,  allows  of  no 
taxes  except  such  as  are  laid  for  the  sake  of  bring- 
ing money  into  the  treasury ;  but  however  that 
point  may  be  ultimately  settled,  I  am  prepared  to 
show  that  taxes  laid  with  any  other  view  than  to 
bring  money  into  the  treasury  violate  the  funda- 


COMMERCE.  151 

mental  laws  of  Political  Economy,  and  are  fol- 
lowed necessarily  by  loss  and  disaster. 

I  shall  assume  now,  that  all  my  readers  believe 
that  free  domestic  exchanges  are  profitable,  and 
should  not  be  interfered  with  by  anybody,  and  shall 
proceed  to  demonstrate  that  free  foreign  exchanges 
are  profitable  also,  and  should  not  be  interfered 
with  by  anybody.  A  system  that  has  been  much 
praised  in  this  and  other  countries  under  the  name 
of  "  Protection  to  native  industry,"  and  that  is 
still  in  full  practical  operation  in  this  country  at 
least,  must  be  shown  to  be  delusive  in  its  name 
and  nature,  to  be  an  obstacle  in  the  way  of  natu- 
ral laws,  to  be  iniquitous  in  its  motive,  and  to  be 
calamitous  in  its  results. 

We  have  seen  already,  that  all  exchange  pro- 
ceeds on  a  diversity  of  relative  advantage.  One 
man  must  be  able  to  render  something  easier  and 
better  than  another,  and  the  second  able  to  render 
something  else  easier  and  better  than  the  first, 
before  they  two  will  exchange  services  with  each 
other ;  and  when  they  have  thus  exchanged  ser- 
vices, each  has  experienced  a  gain.  So  univer- 
sally in  the  realm  of  exchange.  The  diversity  that 
lies  at  the  basis  of  the  trade  comes  partly  from 
nature  and  partly  from  practice.  The  cotton- 
planter  of  Mississippi  has  an  advantage,  both 
natural  and  acquired,  in  the  raising  of  cotton, 
over  his  fellow-citizen  of  Maine  ;  and  the  cotton- 
manufacturer  of  Maine  has  an  advantage,  both 
natural  and  acquired,  in  the  working  up  of  cot- 


152  POLITICAL  ECONOMY. 

ton,  over  the  planter  of  Mississippi ;  and,  accord 
ingly,  they  exchange  cotton  for  cloth  to  the 
mutual  advantage  of  both.  Climate,  soil,  labor- 
ers used  to  the  sun,  and  practice,  conspire  to 
give  his  advantage  to  the  planter:  a  mountain 
stream  leaping  to  his  wheel  with  a  song,  and  an 
ingenuity  and  endurance  common  to  him  and 
his  neighbors  from  a  colder  clime  and  a  harder 
soil  and  a  different  training,  conspire  to  girve  his 
advantage  to  the  manufacturer.  These  and  other 
irreducible  differences  exist  for  a  wise  reason  even 
within  each  single  country,  and  make  it  certain  that 
profitable  exchanges  will  prevail  therein  so  long 
as  the  world  shall  stand ;  while  greater  and  more 
irreducible  differences  as  between  different  coun- 
tries indicate  unmistakably  the  will  of  God  that 
they  shall  continue  to  exchange  with  reciprocal 
benefits  so  long  as  the  world  shall  stand.  Some- 
times the  ocean,  sometimes  a  river,  sometimes 
mountains,  and  sometimes  only  an  imaginary  line, 
divide  the  nations  from  each  other ;  and  these 
barriers,  wherever  they  exist,  doubtless  assist 
somewhat  in  the  forming  and  maintaining  of  the 
differences  on  which  trade  depends,  while  the 
barriers  themselves  make  somewhat  more  difficult 
the  trade  to  which  they  indirectly  minister ;  and 
hence,  how  shallow  and  self-destructive  is  the 
logic,  which  infers  from  the  existence  of  natural 
barriers,  that  some  artificial  barriers  in  addition 
are  needful,  since  these,  if  they  could  be  perma- 
nently established,  as  they  cannot,  would  only 


COMMERCE.  153 

serve  to  prevent  the  trade  to  which  they  might 
otherwise  indirectly  minister. 

God  made  the  world,  and  he  made  it  wisely. 
He  knew  just  what  barriers  to  set  up,  considering 
all  the  ends  that  he  had  in  view,  some  of  which 
were  doubtless  more  important  than  any  interests 
of  international  trade.  The  applause  of  men  cer- 
tainly, not  to  say  the  favor  of  God,  has  always 
rested  upon  those  who  have  been  successful  in 
overcoming  these  natural  barriers  for  the  sake  of 
an  easier  traffic  and  a  more  extended  intercourse. 
It  would  seem  to  be  nothing  less  than  presumptu- 
ous, in  view  of  the  natural  and  constant  induce- 
ments to  trade  that  spring  out  of  the  God-given 
diversities  among  the  nations,  and  in  view  of  the 
universal  feeling  that  a  Mt.  Cenis  tunnel  or  a 
Suez  canal  is  a  great  blessing,  for  certain  men  to 
deem  themselves  wise  enough  to  set  up  at  will 
artificial  barriers  to  trade,  and  then  to  undertake 
to  defend  their  barriers  as  an  economical  blessing 
to  the  world !  It  would  seem  to  be  pretty  clear 
beforehand,  that  such  men  must  be  mistaken  in 
their  supposed  ability  to  improve  on  the  world 
and  to  impose  on  the  world ! 

These  artificial  barriers  are  brought  into  play  by 
moans  of  an  instrument  called  a  Tariff.  The 
origin  of  the  word  will  throw  light  upon  the 
thing.  The  southernmost  point  of  the  Peninsula 
of  Spain,  which  juts  down  into  the  Straits  of 
Gibraltar,  holds  a  town  named  Tarifa,  so  named 
from  a  Berber  chief  who  crossed  over  from  Africa 


154  POLITICAL  ECONOMY. 

to  reconnoitre  the  country  previous  to  its  conquest 
by  the  Moors.  After  the  Moorish  conquest  in 
711,  a  castle  was  built  on  this  spot,  which  com- 
manded the  straits,  and  vessels  passing  out  of  or 
into  the  Mediterranean  were  forcibly  stopped,  and 
compelled  to  pay  "  duties  "  on  their  cargoes  at 
certain  fixed  rates.  From  this  place  and  circum- 
stance, the  word  "  tariff "  passed  into  the  English 
and  other  European  languages.  The  facts  just 
recounted  give  illustration,  however,  of  something 
more  than  the  origin  of  the  word  ;  they  illustrate 
the  fundamental  character  of  the  thing;  since  a 
tariff,  whether  for  Revenue,  Protection,  or  what 
not,  always  demands  something  from  somebody, 
and  never  offers  to  give  any  thing  to  anybody.  It 
is  always  so  much  taken  out.  Its  sign  is  minus,  and 
not  plus.  In  the  given  case,  each  ship  that  passed 
through  the  Straits  was  so  much  the  poorer  for  all 
that  was  paid  at  Tarifa.  It  was  not  an  exchange. 
It  was  robbery.  It  was  black-mail.  No  one  will 
try  to  defend  the  Moors  for  their  act  of  extortion, 
but  many,  who  try  to  defend  a  "  protective  tariff  " 
so-called,  forget  its  inmost  nature,  to  which  it  is 
always  true,  namely,  that  it  takes  but  never  gives. 
Even  a  "revenue  tariff"  so-called,  like  that  of 
England,  from  which  has  been  eliminated  every 
purpose  but  one  of  fair  taxation,  is  still  only  a 
series  of  demands.  Thou  shalt  pay  is  the  only 
thing  a  tariff  says,  or  can  say.  Some  people  have 
got  it  into  their  heads  that  a  tariff  is  somehow  or 
other  a  positively  productive  agent,  a  spur  to  the 


COMMERCE.  155 

progress  of  industry,  something  indispensable  to 
the  ongoing  of  exchanges,  while  the  fact  is,  that  a 
tariff  even  in  its  best  estate  is  only  another  name 
for  taxes.  A  tariff  in  general  may  be  thus  de- 
fined ;  —  A  schedule  of  taxes  levied  by  a  government 
upon  imported  goods. 

But,  though  all  taxes  are  so  much  abstracted 
from  the  pockets  of  the  payers,  the  purpose  for 
which  the  taxes  are  levied  makes  a  great  difference 
practically  in  the  character  and  effect  of  the  taxes 
themselves.  On  a  moment's  reflection,  my  readers 
will  perceive,  that  all  taxes  of  whatever  kind  must 
come  out  of  the  gains  of  exchanges,  since  there  is 
no  other  way,  gifts  and  stealing  aside,  for  any  man 
to  get  the  money  with  which  to  pay  his  taxes 
except  through  exchanges.  Those  tariff-taxes, 
therefore,  that  are  not  designed  to  discourage  the 
buying  and  selling  of  foreign  goods,  that  do  not 
aim  to  prevent  or  lessen  exchanges,  but  only  to 
withdraw  a  fraction  of  their  gains  for  the  use  of 
government,  are  far  less  objectionable  every  way 
than  those  whose  design  is  to  lessen  or  prevent 
altogether  the  buying  of  the  foreign  goods  on 
which  the  taxes  are  laid.  Their  character  ia 
different,  their  relation  to  exchanges  is  different, 
and  their  effect  is  different.  The  difference  be- 
tween the  two  is  just  the  difference  between  a 
revenue  tariff  properly  so-called  and  a  protective 
tariff  properly  so-called.  A  revenue  tariff  is  a  sched- 
ule of  taxes  laid  upon  imported  goods  with  an  eye 
to  just  taxation  only.  If  such  taxes  are  to  bring 


156  POLITICAL  ECONOMY. 

in  a  good  deal  into  the  treasury  (and  that  by  the 
definition  is  their  sole  purpose)  their  rate  must  be 
low.  so  as  not  to  prevent  the  buying  of  the  goods, 
for  in  that  case  no  revenue  at  all  is  received,  but 
BO  as  to  allow  the  exchanges  to  take  place  as 
nearly  as  possible  as  before,  only  taking  out  a 
little  from  the  gains  of  each  particular  exchange, 
and  relying  on  the  large  number  of  exchanges  to 
make  up  a  good  deal  in  the  aggregate.  The  real 
interest  of  a  revenue  tariff  is  to  have  large  impor- 
tations, for  it  has  been  found  by  experience,  and 
might  have  been  anticipated  on  principle,  that  a 
low  rate  of  tax  brings  in  more  revenue  than  a 
high  rate  of  tax,  which  last  always  decreases 
importations  on  which  the  tax  is  levied.  The 
exact  mean  must  of  course  be  found  out  by  trial. 

Then,  in  the  second  place,  it  is  the  interest  of  a 
revenue  tariff,  that  the  people  shall  pay  no  more 
money  in  consequence  of  a  tax  being  levied  than 
just  the  tax  itself;  and,  therefore,  a  proper  reve- 
nue tariff  will  only  put  taxes  on  goods  such  as  are 
wholly  imported  from  abroad,  and  not  also  made 
or  grown  at  home  ;  for,  if  tariff-taxes  are  laid  on 
such  imported  goods  as  are  similar  to  goods  had  in 
the  country,  then  the  effect  of  the  imposts  is  to 
raise  the  price  of  both  the  imported  and  the  simi- 
lar domestic  goods,  since  they  come  into  competi- 
tion with  each  other,  and  the  imported  goods  of 
course  are  raised  in  price  by  the  tax,  so  that,  the 
people  in  this  case  are  obliged  to  pay  more  in  con- 
sequence of  the  tax  than  the  tax  realizes  to  the 


COMMERCE.  157 

government,  which  is  against  the  interest  ot  the 
revenue  in  general,  and  a  revenue  tariff  in  particu- 
lar. A  few  years  ago,  when  the  tariff-tax  on  salt 
was  higher  than  it  is  at  present,  one-half  of  the 
salt  used  in  this  country  was  imported  and  one 
half  domestic :  the  tariff-tax  raised  the  price  alike- 
of  all  that  was  consumed,  and  the  people  paid 
twice  as  much  on  account  of  the  tax,  as  the  gov- 
ernment got  from  the  tax,  which  is  a  very  bad 
form  of  taxation  as  such,  and  which  accordingly  a 
revenue  tariff  will  avoid,  and  lay  its  taxes  on  arti- 
cles which  are  wholly  imported  from  abroad  so 
far  as  possible,  and  if  thought  impossible  in  certain 
cases,  it  is  still  the  interest  of  a  revenue  tariff  as 
such,  that  an  excise  (a  home  tax)  be  laid  to  the 
same  amount  on  the  corresponding  domestic  goods, 
so  that  the  principle  be  maintained  throughout 
that  the  government  shall  get  all  that  the  people 
are  made  to  pay  on  account  of  any  tax. 

Also,  in  the  third  place,  it  is  the  interest  of  a 
purely  revenue  tariff  that  its  taxes  be  laid  on  as< 
few  articles  as  will  realize  the  needful  revenue, 
and  all  other  imported  articles  be  exempted. 
People  do  not  like  to  pay  taxes ;  and,  besides,  the 
taxes  paid  lessen  by  just  so  much  the  motives  to 
continue  the  exchanges,  which  exchanges  in  turn 
are  the  only  reservoir  whence  any  taxes  can  be 
drawn.  Accordingly,  the  commercial  prosperity 
of  any  people  depends  very  much  upon  the  kind 
and  amount  of  their  taxation,  and  remissions  of 
taxes  have  been  found  to  work  like  magic  upon 


158  POLITICAL  ECONOMY. 

the  ability  of  the  people  to  pay  taxes,  by  relieving 
them  at  several  points  and  thus  enabling  them  to 
pay  more  and  easier  at  the  one  point.  The  buoy- 
ancy of  trade  is  greatly  promoted  by  relief  from 
vexatious  interference  and  onerous  payment  at 
many  points,  so  that  it  becomes  able  and  willing  to 
bear  comparatively  large  drafts  at  the  one  point 
selected  by  government.  Whenever  there  are  a 
few  articles  of  universal  consumption,  like  tea  and 
coffee,  which  are  wholly  or  mostly  imported  from 
abroad,  and  a  few  other  articles,  like  wine  and 
spirits,  on  the  domestic  production  of  which  an 
excise  corresponding  to  the  tariff-tax  on  the  im- 
ported part  can  be  collected,  a  large  revenue  can 
be  realized  to  the  government  through  a  tariff, 
whose  rates  shall  be  comparatively  low,  whose 
items  shall  be  comparatively  few,  and  whose  bur- 
dens shall  not  be  felt  beyond  the  taxes  actually 
paid  to  government.  No  very  great  objections  lie 
against  such  a  tariff  as  this,  although  we  shall  see 
in  our  chapter  on  Taxation  that  there  is  a  more 
excellent  way  to  get  revenue  even  than  this.  It 
illustrates  the  feeling  among  intelligent  men  that 
all  tariffs  are  destined  to  pass  away,  that  the 
Emperor  of  Brazil,  when  shown  a  few  years  ago 
the  new  custom-house  at  St.  Louis,  and  when  told 
that  it  would  last  400  years,  exclaimed,  "  "What  i 
You  do  not  mean  to  say  that  there  will  be  any 
custom-houses  400  years  from  now !  " 

What  is  deceptively  called  a  "protective  "  tariff 
is  directly  the  opposite  of  a  revenue  tariff  in  its 


COMMERCE.  159 

three  fundamental  principles  as  just  sketched.  No 
word  could  be  worse  chosen,  if  accuracy  of  descrip- 
tion were  desired,  than  the  word  "  Protection  '* 
to  describe  what  passes  urder  that  name.  Some 
persons  may  indeed  be  temporarily  "  protected  " 
against  foreign  competition  in  their  business  by 
high  tariff-taxes,  but  they  are  so  protected  at  the 
immediate  expense  of  all  their  fellow-citizens,  and 
ultimately  at  their  own  expense.  The  system  is 
short-sighted,  greedy,  and  hence  self-destructive. 
A  protective  tariff  is  a  schedule  of  taxes  laid  on  im- 
ported goods  with  a  view  to  raise  the  price  of  certain 
home  commodities,  by  cutting  off  foreign  competition 
in  them.  All  the  arguments  of  protectionists  in 
favor  of  their  system,  and  all  their  objections  to 
free  trade,  imply  when  they  do  not  affirm,  that  the 
purpose  of  "  protection "  is  a  rise  of  price  of 
the  "  protected "  commodities.  We  shall  judge 
the  protectionists  by  what  they  say,  and  also  more 
especially  by  what  they  do,  —  when  allowed  to 
have  their  own  way.  We  have  had  in  this  coun- 
try since  1861  an  avowedly  protective  tariff,  to 
which  we  shall  go  for  illustrations  of  what  protec- 
tion proposes  and  accomplishes. 

In  the  first  place,  in  accordance  with  its  ground- 
idea,  a  protective  tariff  levies  very  high  taxes,  so 
as  to  exclude  the  taxed  commodity  altogether,  or 
to  raise  its  price  by  means  of  the  tax  to  the  point 
to  which  it  wishes  to  bring  up  the  price  of  the 
protected  home  commodity.  As  a  rule,  there  is  a 
market  price  for  similar  commodities  of  the 


160  POLITICAL  ECONOMY. 

grade,  and  foreign  and  domestic  commodities  of 
one  grade  tend  toward  one  price ;  and  if  the  for- 
eign commodity  has  been  taxed  on  coming  in,  the 
tax  of  course  must  be  added  to  its  price,  and  the 
price  of  the  domestic  commodity  corresponding 
tends  to  rise  to  the  same  point.  It  will  not  always 
rise  to  that  point,  because  domestic  competition 
may  keep  it  down  somewhat,  and  the  foreignei 
may  be  willing  temporarily  to  sacrifice  a  part  of 
his  profits  for  the  sake  of  keeping  the  market ; 
but  the  tendency,  the  theory,  the  promise,  and  the 
practical  working,  of  a  protective  tariff  is  just  to 
do  that.  High  duties,  therefore,  have  always 
been  the  cue  of  Protection.  Between  1875  and 
1880,  the  American  people  paid  on  woollen  cloths 
imported  an  average  of  59  per  cent  ad  valorem,  on 
other  woollen  fabrics  72  per  cent,  on  carpets  55 
per  cent,  and  on  bunting  95  per  cent.  On  fine 
wools  imported,  the  average  tariff-tax  was  not  less 
than  100  p&r  cent;  and  foreign-built  ships  are 
absolute!/  prohibited  from  carrying  the  Ameri- 
can colors,  or  having  an  American  registry.  All 
this  is  in  the  interest  of  protection.  From  1816 
to  1880,  there  was  no  competition  whatever  with 
American  ship-building,  because  protection  has 
chosen  to  exclude  foreign  ships  altogether;  and 
it  is  an  interesting  commentary  on  the  princi- 
ple of  restriction,  that  ocean  ship-building  has 
practically  ceased  in  the  United  States  under  the 
perfection  of  protection.  We  can  no  longer  build 
ships  on  account  of  protection,  and  are  forbidden 


COMMERCE.  161 

by  protection  to  buy  them,  and  the  American  flag 
has  mostly  disappeared  from  the  ocean. 

I  refer  to  these  instances  here  in  order  to  show 
the  fondness  of  protection  for  high  duties,  and 
even  for  regulations  in  the  nature  of  prohibition. 
The  duties  on  coarse  woollen  blankets,  in  tho 
decade  1870-1880,  were  so  high  as  practically  to 
preclude  their  importation.  This  is  consistent 
with  the  idea  of  protection,  but  it  is  not  consist- 
ent with  the  idea  of  revenue,  nor  is  it  consistent 
with  any  liberal  ideas  on  the  subject  of  exchanges 
in  general.  Let  us  notice  two  or  three  effects  of 
these  high  duties: — (1).  The  effect  on  revenue 
to  lessen  it.  The  best  illustration  of  this  principle 
was  exhibited  in  the  United  States  internal  reve- 
nue tax  on  distilled  spirits  : 

1868.  Direct  tax  of  $2  per  gallon  on  distilled 

spirits  ;  aggregate  revenues  .  .  $18,665,000 

1870.  Direct  tax  of  50  cents  per  gallon  ;  ag- 
gregate revenues  ....  $55,606,000 

1874.  Direct  tax  of  70  cents  per  gallon  ;  ag- 
gregate revenues  ....  $49,444,000 

If  the  purpose  be  to  get  revenue  from  foreign 
goods,  the  goods  must  be  allowed  to  come  in  ;  but 
if  the  purpose  be  to  get  protection  so-called,  it  is 
better  that  the  goods  be  kept  out  by  the  tax. 
Protection  has  been  almost  perfect  in  coarse  wool- 
len blankets,  and  the  revenue  has  been  virtually 
nothing.  Protection  has  been  perfect  in  ships  for 
65  years,  and  not  a  penny  of  revenue  from  them  of 


162  POLITICAL  ECONOMY. 

course.  Complete  protection  annihilates  revenue ; 
protection  nearly  complete  almost  annihilates  reve- 
nue ;  is  it  not  fair  to  conclude,  that  high  duties 
are  hostile  to  revenue  ?  It  is  not  denied  that  high 
duties  may  bring  in  considerable  revenue,  and  at 
the  same  time  afford  considerable  protection ;  but 
it  is  denied,  that  they  can  do  this  without  making 
the  people  pay  a  great  deal  more  than  the  treasury 
gets,  which  is  surely  not  a  good  scheme  for  reve- 
nue. Low  rates  of  duty  are  best  for  revenue,  and 
high  rates  are  best  for  protection,  and,  therefore, 
revenue  and  protection  are  incompatible  with  each 
other,  and  all  attempts  to  combine  them  will  be  at 
the  expense  of  one  or  the  other. 

(2).  The  effect  on  exchanges  to  discourage 
them.  Tariff-taxes,  like  all  others,  come  out  of 
the  gains  of  exchanges,  and  if  these  taxes  be 
heavy,  the  motives  to  trade  are  lessened  on  both 
sides ;  the  foreigner  realizes  less  on  what  he  sends 
over,  and  the  native  realizes  less  on  what  he  sends 
back,  in  consequence  of  these  protective  taxes ;  if 
the  tax  shuts  out,  as  it  sometimes  does,  the  foreign 
product,  the  foreigner  loses  that  market  entirely, 
and,  what  is  usually  lost  sight  of,  the  native  loses, 
BO  far  forth,  his  own  market  entirely;  for,  W3 
cannot  be  too  often  reminded  that  trade  is  a 
mutual  thing,  if  we  will  not  buy  we  cannot  sell  of 
course,  if  a  tariff  keeps  out  foreign  goods  it 
thereby  keeps  in  domestic  goods  that  want  to  go 
out  for  a  market,  and  the  wound  inflicted  by  pro- 
tective taxes  is  thus  a  double  wound.  In  order  to 


COMMERCE.  163 

enable  certain  protected  interests  to  get  an  artifi- 
cial price  for  their  products,  certain  foreigners 
lose  their  best  market;  and  what  is  more,  certain 
citizens  lose  their  best  market  against  these  foreign 
goods  shut  out ;  and  what  is  more  still,  all  native 
consumers  of  that  class  of  goods  have  to  pay  much 
more  than  the  goods  are  worth  in  a  free  market, 
a  port  of  the  extra  price  indeed  going  to  the  go  7- 
eniment  in  the  form  of  taxes,  but  generally  a 
larger  part  going  to  favored  individuals  in  the 
form  of  unearned  bounties.  Is  not  one  industri- 
ous citizen  as  deserving  as  another?  And  what 
right  has  government  to  take  away  his  market 
from  one  citizen,  who  only  asks  to  be  let  alone  to 
make  profitable  exchanges,  in  order  to  make  an 
artificial  market  for  another  citizen,  who  clamors 
for  government  help  to  exalt  himself  and  thereby 
depress  his  fellow-citizens?  An  excellent  au- 
thority l  has  calculated  that  on  the  average  of 
dutiable  goods  the  price  of  the  corresponding  do- 
mestic goods  is  enhanced  to  the  extent  of  at  least 
two-thirds  of  the  duty.  Thus,  the  foreigner  is 
harmed  by  protective  taxes,  (which  is  poor  policy 
in  the  end,)  the  citizen  ready  to  exchange  with 
him  is  harmed  also,  (which  is  worse  policy,)  and 
there  has  been  besides  a  disturbance  of  prices  by 
which  some  citizens  get  more  than  they  should 
and  other  citizens  are  compelled  to  pay  more 
than  they  should,  (which  is  the  worst  possible 
policy.)  It  is  not  strange  that  Exchange  depre* 

»  Hon.  Robert  J.  Walkei,  ai  1847. 


164  POLITICAL  ECONOMY. 

Bates  such  an  unjust,  unnatural,  and   disturbing 
scheme. 

(3).  The  effect  on  morals  to  loosen  them.  When 
citizens  see  that  their  government  is  a  respecter  of 
persons,  that  rich,  and  otherwise  influential  men 
can  get  laws  passed  for  their  individual  behoof, 
and  that  the  cry  of  thousands  weighs  little  against 
the  unjust  claim  of  one,  popular  regard  for  gov- 
ernment declines  of  course,  respect  for  laws  de- 
clines of  course,  the  smuggler  never  yet  failed 
to  accompany  high  protective  duties  and  never 
will,  the  selfish  informer  never  fails  to  follow 
the  smuggler,  the  legislator  loses  sight  of  the 
general  good  in  the  desire  to  please  a  few  power- 
ful constituents,  bribes  direct  or  indirect  have 
had  much  to  do  with  our  protective  tariffs,  the 
public  conscience  is  demoralized  by  the  spectacle 
of  interest  and  influence  ruling  in  high  places, 
large  fortunes  acquired  through  favoritism  en- 
throned in  law  provoke  envy  and  ill-will,  the  poor 
are  angered  at  and  ready  to  despoil  the  rich,  the 
rich  in  turn  contemn  the  unorganized  though 
plundered  poor,  and  society  gets  secretly  disorgan- 
ized and  by  the  ears  in  consequence  of  a  departure 
from  the  path  of  impartial  justice.  With  one  or 
two  partial  exceptions,  a  protective  tariff  has  never 
been  enacted  in  this  country  but  in  the  teeth  of 
an  unyielding  and  bitter  opposition;  the  instincts 
of  the  masses  have  been  naturally  enough  against 
all  such  legislation ;  it  was  a  piece  of  such  legisla- 
tion in  1828,  that  roused  the  ire  of  South  Carolina, 


COMMERCE.  165 

and  led,  through  the  action  of  Mr.  Calhoun  and 
others,  to  the  doctrine  of  nullification,  and  became  a 
mainspring  to  the  series  of  misunderstandings  and 
jealousies,  that  culminated  in  the  late  civil  war ; 
in  short,  protective  tariffs  bred  mischiefs  and  war 
in  Europe  for  150  years,  and  have  given  birth  in 
this  country  to  more  of  demoralization  and  disin- 
tegration than  any  other  one  thing  except  slavery. 
If,  then,  high  duties  lessen  revenue,  wound  ex- 
changes, and  loosen  morals,  is  it  not  time  for  an 
intelligent  people  to  abandon  them  ? 

Again,  in  the  second  place,  in  accordance  with 
the  aim  of  the  system,  protection  chooses  for  the 
incidence  of  its  taxes  those  foreign  goods  which 
would  otherwise  come  most  into  competition  with 
its  favored  domestic  goods,  and  thus  contradicts 
the  most  important  principle  of  a  revenue  tariff. 
Tea  and  coffee,  for  example,  are  wholly  imported 
from  abroad,  and  tariff-taxes  upon  them,  conse- 
quently, will  raise  the  price  of  nothing  else.  They 
are  among  the  best  things  to  tax,  because  they  are 
ir.  universal  consumption,  and  because  the  govern- 
ment will  get  all  the  people  are  made  to  pay 
under  the  tax.  But  protectionists  as  such  do  not 
like  such  taxes.  They  do  not  serve  their  ends. 
In  1872,  under  a  deceptive  cry  of  a  "  Free  break- 
fast table,"  the  tea  and  coffee  taxes,  easily  realiz- 
ing many  millions  of  dollars  to  the  treasury,  were 
repealed  under  the  lead  of  a  protectionist  con- 
gressman, for  the  sake  of  afterwards  holding  on  to 
the  protective  taxes  by  the  plea  that  any  further 


166  POLITICAL  ECONOMY, 

reduction  of  revenue  would  be  dangerous.  The 
eye  of  the  protectionist  as  such  is  never  on  his 
country's  treasury,  but  always  on  the  extra  price 
of  some  domestic  articles.  Consumers  of  these 
articles  bear  the  whole  burdens  of  the  extra  price 
caused  by  the  tariff-tax  to  both  the  imported  and 
the  home-made. 

It  is  impossible  to  tell  exactly  how  much  of 
their  forced  contributions  goes  to  the  treasury, 
and  how  much  to  the  protected  individuals.  Hon. 
H.  C.  Burchard  of  Illinois,  a  congressman  unusu- 
ally well  informed  and  candid,  not  long  ago  cal- 
culated,1 that  of  the  contribution  of  each  family 
in  the  United  States  on  the  average,  under  the 
iron,  steel,  cotton,  and  woollen  duties  as  they  were 
at  that  time,  $5  went  to  the  treasury,  and  $9  to 
manufacturers'  dividends.  I  see  no  reason  to 
question  the  substantial  exactness  of  this.  I 
know  that  in  many  single  articles,  as  in  salt  for- 
merly, and  in  blankets  and  bunting,  the  propor- 
tion was  far  worse  than  this.  If  we  pass  from 
particulars  to  generals,  the  figures  become  start- 
ling, and  the  wrong  appears  frightful.  Take  the 
two  decades  between  1860  and  1880,  and  putting 
the  annual  amounts  of  the  domestic  protected 
manufactures  below  the  average  as  given  by 
the  three  censuses,  and  reckoning  also  the  rates 
of  duty  assessed  on  the  corresponding  foreign 
goods  below  the  actual  tariff-rates  from  year  to 
year,  and  conceding  that  the  domestic  goods  were 

1  Soeech  of  May  25,  1876. 


COMMERCE.  167 

raised  in  price  only  half  so  much  as  the  average 
duty  paid  on  the  corresponding  foreign  goods  for 
the  same  time,  and  we  have  then  these  results  in 
figures,  which,  were  they  not  demonstrably  below 
the  truth,  would  be  beyond  belief;  namely,  call- 
ing the  annual  domestic  product  of  protected 
goods  but  $3,000,000,000,  and  the  average  duty 
by  which  they  were  protected  but  40  per  cent, 
and  their  own  rise  of  price  in  consequence  of  the 
duty  but  20  per  cent,  then  the  American  people 
paid  needlessly  under  the  tariff  $600,000,000  every 
year,  or  $12,000,000,000  in  the  20  years,  not  one 
penny  of  which  money  went  into  the  Treasury  of 
the  United  States.  Indeed,  the  best  protective 
duty  is  that  which  pays  least  into  the  treasury, 
and  most  into  the  pockets  of  individuals ;  and  is 
it  any  wonder  that  the  so-called  "protectionist 
interest"  was  so  strong  in  the  two  decades  re- 
ferred to,  —  so  strong  as  against  the  masses  of  the 
people  and  as  against  the  thinking  men  of  the 
people,  since  it  had  the  power,  under  the  forms 
of  law,  to  distribute  "where  it  would  do  the 
most  good  "  for  its  own  ends,  this  enormous  sum 
of  $12,000,000,000? 

The  effect  of  this  distribution  was  seen  in  the 
apparent  complacency  of  Congress  in  this  mon- 
strously unjust  system,  and  in  the  acquiescence 
in  it,  if  not  advocacy  of  it,  on  the  part  of  the  vast 
majority  of  the  newspapers  of  the  country.  But, 
in  the  early  spring  of  1880,  white  printing-paper 
advanced  50  per  cent  in  price ;  and  then  there 


168  POLITICAL  ECONOMY. 

arose  a  universal  outcry  of  the  newspapers  for  the 
removal  of  the  20  per  cent  duty  on  paper,  and 
also  of  the  duties  on  paper-pulp,  chemicals  that 
enter  into  the  manufacture  of  paper,  type,  and 
even  the  type-metals.  It  is  one  thing  to  have  to 
see  your  neighbors  pay  high  prices  under  protec- 
tive duties,  and  quite  another  thing  to  have  to 
pay  them  yourself,  as  this  instance  shows ;  and 
Congress,  too,  was  startled  for  once  out  of  its 
venal  satisfaction  in  a  false  system,  because  these 
7,000  newspapers  stood  very  near  to  the  sources 
of  political  life,  while  the  cry  of  70,000  ordinary 
and  unorganized  citizens  would  not  have  produced 
a  ripple  in  that  body.  Newspapers  can  voice 
their  own  grievances,  and  compel  attention  to 
them,  while  the  minds  of  the  masses  of  the  people 
are  confused  as  between  "  revenue  "  and  "  protec- 
tion," and,  besides,  they  have  no  organs  by  which 
to  make  themselves  felt  in  the  National  Legisla- 
ture. 

One  of  the  worst  things  about  protective  duties 
is,  that  the  forced  contribution  under  them  is 
usually  drawn  from  the  pockets  of  those  who  are 
least  able  to  pay  it,  and  passes  over  into  the 
pockets  of  those  who  are  best  able  to  do  without 
it,  and  who  cannot  show  the  least  claim  to  it. 
The  average  duty  on  woollen  cloths  1861-1881 
was  almost  precisely  the  same  as  the  duty  on  silks, 
namely  60  per  cent ;  and,  the  coarser  and  cheaper 
the  cloth,  the  heavier  was  the  rate  of  duty, 
because  there  was  a  duty  per  pound  combined 


COMMERCE.  169 

with  a  duty  ad  valorem,  and  hence,  the  coarser  the 
cloth  the  higher  the  duty  paid,  and  the  higher 
could  the  price  be  carried  up  of  the  coarse  domes- 
tic cloth.  The  fundamental  injustice  of  a  pro- 
tective tariff  is  made  much  greater  by  its  throwing 
its  special  burdens  just  where  they  ought  not  to 
borne,  namely,  on  the  poorer  classes.  The  duty 
on  cheap  bunting  has  been  more  than  35  per 
cent  more  than  on  silk ;  and  the  poorer  patriot, 
who  wanted  to  hoist  the  colors  of  his  country 
on  the  Fourth  of  July,  had  to  pay  over  95  per 
cent  on  his  material  if  imported,  while  his  rich 
neighbor,  who  could  afford  a  silk  flag,  paid,  but 
60  per  cent  on  his  material. 

Almost  precisely  one-half  of  the  people  of  the 
United  States  get  their  living  from  agriculture, 
but,  from  the  nature  of  the  case,  these  cannot  be 
benefited  by  protective  duties,  while  the  burdens 
of  a  protective  tariff  fall  heavily  on  them,  both 
directly  and  indirectly ;  directly,  because  many  of 
the  things  they  buy  are  thereby  raised  in  price,  and 
indirectly  also,  because  the  things  they  sell  are 
thereby  depressed  in  price.  This  last  will  be  very 
evident,  when  we  reflect,  that  the  foreign  market 
for  American  products  is  curtailed  in  just  the  pro- 
portion in  which  the  American  market  for  foreign 
products  is  curtailed  by  a  restrictive  tariff.  If 
foreign  products  are  kept  out  of  this  country  by 
obstructive  legislation,  then  we  may  be  perfectly 
sure  that  our  own  products  are  for  that  reason 
kept  out  from  other  countries,  or  reduced  in  value 


170  POLITICAL  ECONOMY. 

there.  Two  nations  are  nothing  more  than  two 
individuals  expanded  and  multiplied,  and  the  same 
principles  which  apply  to  individuals  in  trade 
apply  to  nations  also ;  so  that,  if  a  nation  refuses  to 
take  what  would  be  naturally  brought,  it  virtually 
compels,  so  far  forth,  other  nations  to  refuse  what 
would  be  naturally  carried.  So,  since  our  products 
exported  are  largely  agricultural  products,  cotton, 
grain,  pork,  bacon,  lard,  and  so  on,  and  the  demand 
for  these,  and,  therefore,  the  value  of  them,  are 
assuredly  lessened  by  our  refusal  to  take  products 
freely  in  pay  for  them,  the  losses  of  a  protective 
tariff  fall  especially  upon  the  farmers.  By  the 
census  of  1870,  only  3  per  cent  of  all  the  persons 
engaged  in  industrial  pursuits  in  this  country  were 
employed  in  the  cotton,  iron,  steel,  woollen,  and 
worsted  industries,  which  are  all  highly  protected 
industries.  It  is  the  many  who  pay,  it  is  the  few 
who  profit,  under  protective  tariff-taxes. 
[—  It  is  pleasant  to  see,  in  accordance  with  the 
principle  of  the  last  paragraph,  that  lessening  the 
tariff-taxes  always  increases  the  volume  of  exports 
per  capita.  For  example,  in  1849  British  exports 
were  but  $10.93  per  capita,  an  increase  of  but  33 
per  cent  over  1839 ;  while  in  1859,  the  end  of  the 
first  decade  of  comparative  freedom  of  imports, 
the  exports  had  risen  to  $22.11  per  capita,  an  in: 
crease  of  105  per  cent  in  the  ten  years.  In  1869, 
i  emissions  of  import-duties  being  of  course  fewer 
for  that  decade,  exports  had  risen  to  $29.79  per 
capita^  that  is,  an  increase  from  1859  of  35  per 


COMMERCE.  171 

cent.  Even  in  1878,  a  year  of  bad  crops  in 
Europe,  and  of  extraordinary  crops  in  the  United 
States^  the  exports  of  the  latter  were  only  $12  per 
capita.  If  a  nation  will  not  buy  freely,  it  can  by 
no  possibility  sell  freely.1 

Just  so,  if  we  compare  the  imports  of  those 
articles  that  are  especially  a  gauge  of  the  degree 
of  the  comforts  of  the  common  people,  we  find, 
for  example,  that  British  imports  of  sugar  in  1852, 
just  after  the  principal  remissions  of  tariff-taxes, 
were  only  28.15  pounds  per  capita  ;  while  in  1877, 
twenty-five  years  after,  they  had  mounted  to 
54.06  pounds  per  capita.  Only  two  pounds  of  tea 
apiece  for  the  British  population  in  1852,  while  in 
1877  there  were  4.52  pounds  apiece.  Just  so  also 
of  the  increase  of  the  carrying  trade  under  free- 
dom: in  1849,  the  British  merchant-marine  con- 
sisted of  3,096,342  tons,  but  in  1878  it  had  reached 
6,236,124  tons,  an  increase  of  101  per  cent. 

Then  again,  in  the  third  place,  a  protective  tariff 
contradicts  another  principle  of  a  revenue  tariff, 
in  that  its  tendency  is  to  tax  many  things  instead 
of  few,  and  make  the  taxes  themselves  complicated 
instead  of  simple.  Undoubtedly,  the  few  persons 
who  get  themselves  protected  first,  would  like  it 
all  the  better  if  nobody  else  would  ask  to  get  pro- 
tected. But  their  very  success  tempts  others. 
When  the  Legislature  begins  to  grant  favors  of 
this  sort,  where  shall  it  stop?  It  had  better  never 

1  See  and  compare  an  excellent  little  book  by  Hon.  8.  8.  Cox, 
entitled  "  Free  Land  and  Free  Trade,"  pp.  34,  35,  W,  8l>,  114,  and 
Indeed  passim. 


172  POLITICAL  ECONOMY. 

begin !  It  will  stop  only  when  combinations  of 
sufficient  influence  and  power  to  impel  it  forward 
can  no  longer  be  organized.  The  natural  tendency 
of  protection  is  to  try  to  protect  many  things, 
because  others  are  sure  to  clamor,  and  because  it 
will  pretty  soon  require  log-rolling  and  combina- 
tion to  maintain  what  has  already  been  secured.  ^ 
Tl.e  woollen  manufacturers  of  this  country,  who 
had  long  been  protected,  found  in  1867,  that  they 
must  help  the  wool-growers,  who  had  not  yet 
been  protected,  to  get  a  heavy  duty  upon  foreign 
wools,  —  the  very  thing  the  manufacturers  did  not 
want,  —  or  else  the  wool-growers  would  turn 
against  and  help  overthrow  the  duties  on  foreign 
woollens.  The  result  of  the  compromise  was  the 
Wool  and  Woollens'  tariff  of  1867,  of  which  the 
most  favorable  thing  that  can  be  said  is,  that  it  is 
difficult  to  say  whether  the  wool-growers  or  the 
wool-manufacturers  have  been  the  most  harmed  by 
it.  The  manufacturers  were  now  obliged  to  pay 
over  100  per  cent  duty  on  fine  wool,  if  they  used 
the  foreign,  as  many  of  them  did,  and  were 
thereby  placed  at  an  immense  disadvantage  as 
compared  with  English  and  German  manufacturers, 
who  obtained  their  wools  without  any  duty  at  all, 
and  were  consequently  able  to  undersell  our  own 
manufacturers  of  fine  cloths  in  our  own  market, 
even  after  paying  the  duty  on  cloths !  This 
result  re-acted  upon  the  wool-growers,  who  found 
that  hampering  the  manufacturers  with  high 
duties  did  not  conduce  to  their  own  prosperity. 


COMMERCE.  173 

If  there  had  been  the  same  demand  for  wool  as 
before,  and  they  the  only  source  of  supply,  they 
would  have  reaped  a  rich  harvest ;  but  there  was 
not  the  same  demand  as  before,  because  many 
branches  of  the  manufacture  require  that  different 
kinds  of  wools  be  mixed,  and  the  makers  having 
no  longer  a  free  market  to  pick  from  were  cur- 
tailed in  the  manufacture,  and  the  demand  for 
even  domestic  wool  fell  off,  prices  declined,  millions 
of  fine-wool  sheep  in  Oliio  and  elsewhere  were 
slaughtered  for  their  pelts  and  carcasses,  and  the 
decade  1870-80  was  more  discouraging  both  for 
the  growers  and  the  manufacturers  than  any  other 
decade  of  our  history.  Many  of  the  most  intelli- 
gent woollen-manufacturers  of  the  United  States, 
who  were  formerly  protectionists,  were  convinced 
by  this  remarkable  experiment  in  tariff-tinkering, 
that  free  materials  are  of  much  more  cor«equence 
to  them  as  manufacturers  than  any  rate  of  tariff- 
duty  on  foreign  cloth  can  be. 

This  instance  of  combination  illustrates  the 
tendency  of  protection  to  many  and  complicated 
duties.  When  England  began  to  abandon  pro- 
tection in  1842,  the  number  of  her  tariff-taxes 
was  1150 ;  and,  on  an  actual  count  in  1868,  the 
number  of  distinct  rates  assessed  on  different 
articles  in  the  United  States  tariff  was  2317 ;  since 
protection  was  wholly  abandoned  in  the  former 
country,  its  tariff  can  be  easily  written  on  the 
palm  of  a  man's  hand  ;  and  even  in  the  latter 
country,  in  which  protection  is  more  or  less  domi« 


174  POLITICAL  ECONOMY. 

nant  still,  the  number  and  grades  of  dutied  articles 
are  much  less  than  they  were  ten  years  ago.  For 
the  year  ending  March  31, 1876,  the  entire  customs' 
revenue  of  Great  Britain  was  derived,  381  per  cent 
from  tobacco,  30f  per  cent  from  spirits,  18i  pel 
cent  from  tea,  8|  per  cent  from  wine,  and  only  3i 
per  cent  from  a  few  other  miscellaneous  articles. 
British  customs'  duties  at  present  put  into  com- 
plete practice  with  the  best  results  the  three 
principles  of  a  revenue  tariff  already  enunciated. 

It  is  also  the  usage  of  protection  to  combine 
specific  and  ad  valorem,  duties  upon  the  same 
article,  that  is,  a  certain  duty  proportioned  to  the 
quantity,  and  in  addition  to  that  a  certain  duty 
proportioned  to  the  value.  For  example,  the  duty 
on  one  grade  of  wool  was  at  one  time  10  cents  per 
pound  and  also  11  per  cent  ad  valorem.  Under 
these  rates,  if  the  value  of  the  unwashed  wool  at 
the  port  of  exportation  were  (as  it  was)  about  10 
cents  a  pound,  then  the  combined  duty  would  be 
about  111  per  cent.  One  object  in  thus  combining 
both  kinds  of  duty  upon  single  articles  is  to  con- 
ceal from  the  people  as  much  as  possible  the  actual 
rate  of  duty,  and  this  is  at  the  same  time  the  great 
objection  to  the  combination.  No  government 
can  afford  to  trifle  with  its  people  in  the  matter  of 
taxes.  If  any  thing  ought  to  be  open,  above-board, 
clear,  and  thoroughly  known  beforehand,  it  is  the 
amount  of  contribution  demanded  by  a  government 
from  its  citizens ;  but  under  these  combined  duties 
it  is  impossible  for  any  importer,  still  le«s  for  the 


COMMERCE.  176 

people,  to  know  what  will  be  demanded,  because 
the  ad  valorem  duty  will  depend  on  the  price  of 
the  article  at  the  place  of  exportation,  which  can 
never  be  exactly  foreseen.  The  importer,  or  his 
agent,  must  take  oath  both  to  the  quantity,  (which 
is  easy,)  and  also  to  the  exact  market  price  at  the 
place  and  time  of  exportation,  (which  is  sometimes 
difficult  or  impossible.)  Phelps,  Dodge  &  Co.,  an 
honorable  firm  in  New  York,  were  mulcted  in 
$271,000,  one-half  of  which  went  to  an  informer, 
because  a  few  invoices,  through  no  fault  of  the 
firm,  appeared  to  have  been  undervalued.  The 
firm,  although  they  paid  the  money,  asserted  their 
innocence,  and  did  not  suffer  one  iota  in  public 
opinion ;  but  the  law  suffered  in  public  opinion, 
and  some  minor  features  of  it  were  afterwards 
repealed,  and  it  is  to  be  one  of  the  triumphs  of 
the  immediate  future  within  intelligent  nations, 
that  there  will  be  no  combination  of  two  kinds  of 
duty  on  the  same  article,  and  also  that  specific 
duties  will  mostly  or  wholly  take  the  place  of 
duties  per  value. 

An  important  report  on  tariff  reform  was 
made  in  1876  to  the  Superior  Council  of  Com- 
merce in  France,  in  which  the  gathered  opinion 
of  the  Chambers  of  Commerce,  the  Chambers 
of  Agriculture,  of  economists,  functionaries,  mer- 
chants, and  manufacturers,  throughout  France, 
pronounces  with  great  unanimity  not  only  in  favor 
of  the  renewal  of  the  commercial  treaties  with 
other  nations,  that  is,  in  favor  of  reciprocity  in 


176  POLITICAL  ECONOMY. 

trade,  but  also  in  favor  of  converting  the  ad 
valorem  into  specific  duties.  "  It  is  easy,"  this 
report  points  out,  "  to  check  fraudulent  declara- 
tions of  weight  and  measure,  but  it  is  extremely 
difficult  when  the  value  of  a  commodity  is  in 
question.  Fair  in  appearance,  these  ad  valorem 
duties  are  really  as  unequal  as  any  others,  and 
their  collection  gives  rise  to  all  sorts  of  difficulties 
between  importers  and  the  customs'  officials,  to 
fraud,  and  to  vexation."  The  good  results  to 
France  of  the  adoption  of  the  principle  of  com- 
mercial treaties  in  1860  are  seen  in  the  fact  that 
in  fourteen  years  the  imports  and  exports  of  that 
country  increased  from  9,689,360,000  francs  to 
13,810,000,000  francs,  in  spite  of  war,  revolutions, 
and  dismemberment.  The  tariffs  of  Great  Britain 
and  Germany  are  already  free,  with  trifling  excep- 
tions, from  all  ad  valorem  duties. 

Free  Trade  is  the  opposite  of  Protection,  and  not 
of  customa  duties  properly  levied  for  revenue.  The 
phrase  is  not  indeed  well  chosen,  though  it  has 
been  long  consecrated  by  usage,  on  account  of 
the  possible  ambiguity  of  the  words.  The  phrase 
may  mean  the  abolition  of  all  tariffs,  —  the  allowed 
introduction  of  all  goods  into  any  country  without 
any  tax  at  all,  —  but  it  is  not  in  this  sense  that 
the  words  have  become  famous ;  it  was  not  for 
this  that  Cobden  and  Bright  and  their  compeers 
agitated  England  from  centre  to  circumference, 
nor  has  it  been  in  this  sense  that  discussion  and 
action  on  free  trade  have  gone  forward  in  thia 


COMMERCE.  177 

country.  The  animated  controversies  of  a  century 
have  settled  the  technical  meaning  of  free  trade 
as  the  opposite  to  that  of  protection ;  in  which 
sense  Great  Britain,  certainly  since  1860,  has  been 
a  free  trade  country.  Free  traders  as  such  are 
satisfied  whenever  the  tariff  of  their  countiy  con- 
tains no  tax  except  those  laid  with  a  single  eye 
to  simple  and  equitable  taxation.  There  are 
those,  however,  and  their  number  is  increasing, 
who  believe  that  even  revenue  tariffs  constructed 
on  the  principles  already  indicated  are  not  a  proper 
instrument  of  taxation,  and  who  think  it  more 
feasible  to  destroy  protection  by  overthrowing 
tariffs  altogether  than  by  reducing  them  to  the 
purely  revenue  form.  They  would  lay  the  axe  at 
the  root  of  the  tree.  The  International  Free 
Trade  Alliance  in  New  York  was  founded l  on  this 
principle ;  and  the  great  prime-minister  of  England, 
Mr.  Gladstone,  expressed  himself  a  few  years  ago 
in  Paris  as  inclining  to  the  belief  that  a  better 
method  of  raising  a  revenue  may  be  devised  than 
that  by  means  of  any  form  of  a  tariff. 

Still,  as  no  one  of  the  leading  nations  has  as  yet 
abolished  its  tariff,  and  as  all  are  likely  to  pass 
through  the  phase  of  a  purely  revenue  tariff  before 
they  come  to  absolute  free  trade,  and  as  the  alter- 
native of  tariff  or  no  tariff  is  rather  a  question  of 
scientific  taxation  than  of  practical  commerce,  —  a 
question  that  we  shall  discuss  under  its  appropri- 
ate head  in  the  final  chapter,  —  it  has  seemed 
viser  to  me  for  economists  and  philanthropists  to 

1  These  figures  come  from  the  official  documents  of  the  n:v 
tional  government,  and  were  stated,  as  in  the  text,  by  Senatoi 
Elaine. 


178 


POLITICAL  ECONOMY. 


assail  and  overthrow  an  actual  grievance,  an  unjust 
discrimination  as  between  classes  of  citizens,  which 
common  people  can  easily  understand,  than  to 
undertake  through  more  complicated  processes  of 
reasoning  to  convince  them  that  any  tariff  is 
necessarily  wrong.  There  ought  to  be  no  mis- 
understanding among  those  whose  common  end  is 
the  removal  of  "  protection,"  whatever  difference 
of  opinion  there  may  be  about  the  most  available 
means  to  compass  that  end.  Commerce  is  such  an 
unspeakable  blessing  to  the  nations,  that  any 
thing  which  essentially  interferes  with  it  should 
be  stricken  down  by  some  means  or  all  means ; 
and  while  I  shall  use  the  words  "  Free  Trade  "  in 
their  conventional  and  controversial  sense,  my 
readers  will  find  that  the  arguments  already 
adduced  and  yet  to  be  adduced  will  lose  nothing 
of  their  significance  and  work  no  confusion  in 
their  minds,  even  if  they  should  adopt  the  other 
view  of  the  meaning  of  these  words.  I  proceed  to 
add  a  few  succinct  arguments  in  favor  of  Free 
Trade,  and,  in  connection  with  these,  the  corre- 
sponding objections  to  Protection. 

1.  Free  trade  would  bring  the  production  of  the 
world  to  its  maximum.  There  is  in  the  world  a 
certain  amount  of  capital  and  a  certain  amount  of 
industry  These,  if  left  to  their  own  keen  sense 
of  interest,  without  any  interference  with  their 
natural  markets,  will  make  the  aggregate  amount 
of  production  in  the  world  as  great  as  that  amount 
of  capital  and  industry  can  make  it.  By  no  pos* 


COMMEBCE.  179 

Bibility  can  protection,  which  is  only  restriction, 
bring  any  new  motives  to  bear  on  producers  univer- 
sally. Even  liberty  brings  no  new  motives  to 
bear,  but  it  gives  perfect  play  to  all  the  natural 
motives  to  production,  among  which  the  desire  to 
better  one's  condition  by  exchanges  is  almost 
universal,  and  these  motives  are  sufficient  for  all 
the  interests  of  production.  Even  if  they  were 
not  sufficient,  as  they  are,  legislation  is  incompe- 
tent to  increase  them  on  the  whole  ;  and  protec- 
tion only  pretends  to  increase  the  stimulus  at 
a  few  points  by  reducing  the  stimulus  at  other 
points.  If,  then,  a  free  commerce  distribute  this 
aggregate  production  over  the  earth  in  accord- 
ance with  the  simple  law  of  supply  and  demand, 
we  shall  have  not  only  the  greatest  production, 
but  the  most  perfect  distribution.  But  if  govern- 
ment steps  in  by  a  restrictive  tariff,  withdraws 
capital  and  industry  from  their  freely  chosen  posts 
of  activity,  prohibits  exchanges  that  would  other- 
wise be  made,  and  commands  commodities  to  be 
manufactured  or  grown  in  localities  in  which  they 
would  not  naturally  be  manufactured  or  grown, 
then,  obviously,  the  aggregate  production  of  the 
world  i=»  made  less,  and  its  distribution  becomes 
less  perfect. 

2.  Free  trade  is  in  accordance  with  the  natural 
indications  of  Providence.  The  countries  of  the 
earth  differ  widely  in  point  of  climate,  soil,  natural 
productions,  established  industries,  and  habits  of 
the  people ;  and  with  these  diversities  of  relative 


180  POLITICAL  ECONOMY. 

advantage  spring  up  the  impulses  and  the  gains  of 
international  traffic ;  usually  considerable  distance, 
and  frequently  other  natural  barriers  also,  have  to 
be  overcome  in  order  to  carry  on  this  trade,  and  it 
will  only  be  carried  on  when,  notwithstanding  all 
this,  the  trade  is  still  profitable  to  both  parties; 
so  that,  there  is  a  plain  indication  of  Providence 
that  such  countries  should  trade  with  each  other, 
and  thus  each  share  in  the  peculiar  good  of  each, 
and  perhaps  communicate  through  a  mutual  eco- 
nomic benefit  some  higher  good  each  to  each. 
Naturally,  under  freedom,  the  nearer  nations  will 
trade  most  with  each  other,  for  the  same  reason 
that  the  volume  of  each  nation's  domestic  trade  is 
larger  than  the  volume  of  its  foreign  trade.  For 
instance,  we  might  expect  that  the  United  States, 
being  nearer  to  and  quite  as  diverse  from  Mexico 
and  the  South  American  States  than  and  as  Eng- 
land and  France,  would  have  a  larger  share  of  the 
trade  on  this  continent ;  but  the  figures  for  1874 
show,  that  while  this  country  sent  to  those  neigh- 
bors but  $28,000,000  of  exports,  France  sent  to 
them  $62,000,000,  and  England  $105,000,000.  This 
could  never  have  happened,  if  the  United  States 
had  obeyed  nature,  and  allowed  a  mutual  free 
trade.  Under  the  reciprocity  treaty  between  the 
United  States  and  the  British  North  American 
provinces,  the  aggregate  of  exchanges  went  up  iu 
one  year  from  $20,691,000  to  $33,494,000,  and  in 
ten  years  to  $84,000,000,  or  more  than  fourfold. 
When  reciprocity  was  repealed  in  1866,  and  the 


COMMERCE.  181 

restrictive  duties  became  operative  again,  the  ex- 
changes fell  in  one  year  from  $84,000,000  to  $57, 
000,000.  Protection,  being  unnatural,  not  only 
destroys  trade,  but  also  makes  the  protected  coun- 
try weaker  and  weaker  relatively  to  less  protected 
or  free-trade  countries.  In  1857,  United-States 
ships  carried  five-sevenths,  or  more  than  71  per 
cent,  of  all  the  imports  and  exports  of  the  country ; 
while  in  1878,  after  a  long  period  of  unprecedented 
protection  for  goods  and  of  absolute  protection  for 
.ships,  American  bottoms  carried  less  than  two- 
sevenths,  that  is,  less  than  29  per  cent,  of  the  total 
foreign  cargoes,  and  free-trade  foreigners  carried 
our  old  proportion  of  more  than  71  per  cent !  Un- 
der protection,  Belgium's  sales  of  her  products  to 
other  countries  increased  in  a  whole  decade  (1840- 
50)  only  124,100,000  francs,  while  in  one  year 
(1871)  under  a  comparative  free  trade  they  in- 
creased 198,600,000  francs.  Protection  accord- 
ingly thwarts  nature,  and  nature  is  perfectly  sure 
to  take  her  revenge.  Why  should  not  the  nations 
open  their  ports  to  foreign  products,  since  that  is 
nothing  but  opening  the  widest  possible  market 
for  their  own  products?  Why  should  not  the 
time  longed  for  by  the  poet  Whittier  be  hastened 
on  and  welcomed  ?  — 

"When  strand  shall  closer  lean  on  strand." 

Why  should  stupid  and  wasteful  obstacles  be 
thrown  across  the  realization  of  the  splendid  apos- 
trophe of  Tennyson  ?  — 


182  POLITICAL  ECONOMY. 

"  Fly,  happy,  happy  sails,  and  bear  the  press ; 
Fly,  happy  with  the  mission  of  the  cross ; 
Knit  land  to  land,  and  blowing  heavenward 
With  silks  and  fruits  and  spices,  clear  of  loll, 
Enrich  the  markets  of  the  golden  year." 

3.  Free  trade  means  abundance  and  cheapness, 
while  protection  means  scarcity  and  dearness.  The 
common  reason  alleged  for  protective  duties  is,  that 
those  goods  would  otherwise  come  in  so  cheap  that 
similar  goods  could  not  be  manufactured  in  this 
country  at  a  profit.  Suppose  they  could  not,  what 
then  ?  Is  it  the  manufacturing  that  people  want, 
or  is  it  the  goods  ?  Which  is  ultimate  in  the  field 
of  exchange,  the  efforts  or  the  satisfactions?  But 
what  we  are  concerned  with  now  is  the  admission 
made  by  protection  at  the  outset  that  things  are 
naturally  too  cheap,  and  that  protective  duties  are 
an  instrument  to  make  them  dearer.  The  admis- 
sion is  honest,  and  the  result  actually  follows.  If 
any  one  is  doubtful  on  this  point,  let  him  try  a  little 
experiment,  —  let  him  propose  to  almost  any  pro- 
tectionist manufacturer  to  remove  the  duty  that 
protects  him,  and  note  the  nature  of  his  reply. 
This  manufacturer  may  have  denied  in  argument 
a  hundred  times,  that  protective  duties  raise  the 
prices  of  goods,  but  the  style  of  his  answer  to 
a  proposal  to  take  off  that  particular  duty  will 
ky  bare  his  deepest  thoughts  on  that  subject. 
A  hundred  to  one,  he  will  say  in  substance, 
"The  removal  of  that  duty  will  enable  the  for- 
eign manufacturer  to  undersell  me."  The  duty 


COMMERCE.  183 

is  in  the  interest  of  scarcity,  and  hence  of  dear- 
ness. 

What  might  of  course  be  anticipated  from  the 
nature  of  the  case,  the  price-lists  actually  show. 
In  1872,  the  Michigan  Central  Railroad  relaid  its 
track  in  Detroit  with  steel  rails  costing  ninety- 
seven  dollars  (gold)  per  ton,  while  at  the  same 
lime  the  Canada  Southern  Railroad  was  laying 
down  the  same  kind  of  rails  within  a  distance  of 
half  a  mile  (across  the  Detroit  River)  at  a  cost  of 
seventy  dollars  (gold)  per  ton.  Protection  in  the 
United  States  made  all  the  difference.  An  in- 
definite tax  on  freight  and  passengers  must  make 
up  to  the  road  the  wretched  tax  of  twenty-seven 
dollars  per  ton  extorted  in  the  interest  of  the 
makers  of  steel  rails.  I  have  myself  seen  price- 
lists,  according  to  which  the  Onondaga  Salt  Co.  of 
Syracuse,  N.Y.,  offered  to  lay  down  salt,  freight 
paid,  at  various  points  along  the  Grand  Trunk 
Railroad  in  Canada  at  much  less  per  barrel  than 
any  American  citizen  could  buy  the  salt  for  in 
Syracuse  itself!  I  am  happy  to  be  able  to  add 
that  the  salt  duties  have  been  since  then  very 
materially  reduced. 

Instances  like  these  might  be  multiplied  indefi- 
nitely, but  I  will  only  instance  further,  in  illustra- 
tion of  the  opposition  of  protection  to  plenty,  that 
during  the  summer  of  1876,  the  sugar-planters  of 
Louisiana  and  Texas  tried  to  defeat  the  then  pend- 
ing Commercial  Treaty  with  the  Sandwich  Islands, 
because  it  admitted  free  of  duty  into  our  ports  all 


184  POLITICAL  ECONOMY. 

unrefined  sugars  from  those  islands.  The  Treaty, 
however,  was  ratified,  and  practical  free  trade  ex- 
ists between  this  country  and  that ;  and  it  is  an 
interesting  illustration  of  the  way  in  which  knock- 
ing off  fetters  from  foreign  trade  immediately 
revives  some  domestic  trade,  that  within  twenty- 
four  hours  of  the  passage  of  the  bill  giving  final 
effect  to  this  treaty,  the  sugar-refiners  of  San  Fran- 
cisco had  taken  steps  to  renew  that  decayed  indus- 
try there.  It  is  still  more  interesting  to  see  how 
the  whole  volume  of  that  trade  between  us  and 
the  Islands  mounted  up  under  the  Treaty:  for 
twelve  years  prior  to  and  including  1876,  our  aver- 
age imports  from  there  were  $1,200,000  a  year, 
while  in  the  calendar  year  1877,  the  first  full  year 
under  the  treaty,  they  rose  to  $2,200,000 ;  during 
the  twelve  years  before  1876,  our  exports  to  the 
islands  averaged  $860,000,  but  in  the  very  first 
year  under  the  treaty  they  jumped  from  $800,000 
to  $1,800,000 !  That  is  to  say,  in  the  first  year  of 
reciprocity,  imports  show  an  increase  of  83  per 
cent,  and  exports  an  increase  of  125  per  cent! 
Freedom  means  plenty. 

4.  Free  trade  fully  recognizes  the  rights  of  private 
property,  while  protection,  by  curtailing,  virtually 
denies  them.  The  right  of  property,  in  the  last 
analysis  of  it,  is  the  right  to  sell  something,  that 
is  to  say,  the  right  to  buy  something.  Nothing  is 
property  that  cannot  be  sold  ;  and  any  legislation 
that  withdraws  any  service  whatever  from  its  best 
and  freely-chosen  market  destroys  a  part  of  the 


COMMERCE.  185 

value  of  that  service.  It  is  a  stab  at  the  right  of 
property.  Protection  says;  —  You  shall  not  buy 
in  that  market,  unless  you  pay  a  tax  designed  to 
prevent  your  buying  in  that  market ;  which  is  the 
same  as  to  say,  You  shall  not  sell  your  product  in 
the  market  where  you  can  get  the  most  for  it ; 
which  in  turn  is  nothing  in  the  world  but  robbing 
you  of  a  part  of  your  private  property  ostensibly 
for  the  benefit  of  another's  private  property,  that 
is,  that  somebody  else  may  sell  a  domestic  product 
for  more  than  it  would  otherwise  be  worth.  Thus 
this  bad  system  is  tainted  on  the  one  side  by  the 
principle  of  slavery,  and  on  the  other  by  the  prin- 
ciple of  socialism.  To  take  away  a  part  of  the 
proceeds  of  one's  industry  is  not  indeed  so  bad  as 
to  take  away  the  whole,  but  the  principle  is  the 
same,  and  it  is  the  principle  of  slavery. 

What  is  taken  from  its  citizens  by  a  just  gov- 
ernment in  legitimate  taxation  is  rightfully  taken, 
and,  on  the  part  of  good  citizens,  is  voluntarily 
and  cheerfully  rendered;  but  what  is  taken  by 
"protection"  out  of  the  pockets  of  one  class  of 
citizens  ostensibly  for  the  benefit  of  another  class 
is  wrongfully  taken,  —  is  in  principle  robbery  on 
the  part  of  the  government  and  slavery  on  the 
part  of  those  who  submit  to  it  without  protest. 
On  the  other  side,  and  what  is  even  worse,  pro- 
tection recognizes  the  principle  that  government 
may  properly  take  a  part  of  the  proceeds  of  one 
man's  industry  to  reward  another  man's  industry 
with,  which  is  the  root-principle  of  socialism,  and 


186  POLITICAL  ECONOMY. 

a  menace  to  the  rights  of  private  property.  Ef 
government  may  properly  take  some  of  the  reward 
of  my  industry  and  offer  it  as  extra  reward  of  my 
neighbor's  industry,  it  may  properly  take  some  of 
the  rewards  of  the  industry  of  both  of  us  to  feed 
and  clothe  the  idle,  and  it  may  even  distribute  at 
will  the  property  of  the  rich  among  the  poor. 
There  is  no  stopping  the  applications  of  the  prin- 
ciple till  the  very  extremes  of  socialism  are 
reached,  if  the  principle  itself  be  once  admitted. 
If  protection  be  right,  then  Proudhon  was  also 
right ;  —  "  Property  is  theft."  So  logically  is  the 
theft  of  property  by  protection  connected  with  the 
doctrine  that  property  is  theft.  Much  of  the  late 
and  present  dissatisfaction  in  this  country  of 
laborers  with  capital  comes  by  subtle  inferences 
from  this  principle  instilled  into  their  minds  by 
protectionists.  The  principle  itself  is  solemnly 
and  comprehensively  denied.  The  fruits  of  every 
man's  industry  belong  to  Am,  save  only  that  part 
which  government  may  properly  take  for  its  own 
support. 

Free  trade  recognizes  this  grand  principle  of 
liberty  and  property.  John  Bright  wrote  one 
of  our  citizens  these  truthful  words :  —  "  Protec- 
tion has  upon  it  a  taint  of  the  great  wrong  of 
slavery.  It  does  not  steal  the  laborer,  but  it  steals 
his  labor,  it  taxes  it  cruelly,  it  lessens  its  result  and 
its  profit,  and  turns  it  into  channels  less  useful  to 
the  laborer.  It  says  to  your  cultivator  of  the  soil  : 
You  must  not  exchange  your  quarter  of  wheat  01 


COMMEECB.  187 

yo  ir  barrel  of  flour  -with  an  Englishman  for  the 
cloth  or  the  hardware  he  would  give  you  for  it; 
only  with  an  American  who  will  give  you  so  much 
less  for  it.  It  was  so  with  us  30  years  ago.  Our 
weavers  could  not  exchange  with  your  farmers  a 
piece  of  cloth  for  a  barrel  of  flour,  but  only  with 
an  English  farmer  who  offered  him  half  a  barrel. 
So  the  protection  system  has  in  it  much  of  tho 
evil  of  slavery,  for  the  labor  of  the  laborer  is  not 
free ;  it  is  by  force  of  law  diminished  in  value. 
This  can  only  exist  in  a  free  country  from  the 
ignorance  of  its  people.  Happily  the  fraud  is  too 
transparent  to  live  long." 

5.  Free  trade  allows  a  natural  and  stable  cost  of 
production,  while  protection  enhances  and  hazards 
it.  We  have  already  seen  how  numerous  and 
delicate  are  the  factors  that  go  to  make  up  the 
cost  of  production  of  commodities,  and  how  im- 
portant it  is  to  the  producer  to  be  able  to  calculate 
and  rely  upon  the  cost  of  these  factors.  If  the 
cost  of  his  raw  materials,  for  example,  be  artifi- 
cially increased  by  tariff-taxes,  it  affects  at  once 
the  cost  of  his  product,  it  affects  his  market  in 
accordance  with  this  general  principle  that  a 
higher  price  narrows  a  market  and  a  lower  price 
broadens  it,  it  perhaps  excludes  him  altogether 
from  a  market  in  which  his  competitors  get  their 
materials  free  of  tax,  and  it  introduces  an  element 
of  uncertainty  and  instability  into  his  business,  all 
which  is  discouraging  and  hazardous. 

An  illustration  may  be  found  in  the  effect  on 


188  0  .          POLITICAL  ECONOMY. 

the  boot  and  shoe  business  of  New  England  of  the 
imposition  of  duties  on  hides  and  leather,  and 
especially  on  lastings  or  serges.  The  export  trade, 
which  was  quite  considerable,  was  nearly  annihi- 
lated in  consequence  of  these  duties ;  which,  so 
far  as  the  lastings  were  concerned,  were  the  more 
remarkable,  inasmuch  as  they  were  not  thought 
of  when  the  duties  were  put  on,  but,  as  they  came 
under  the  technical  tariff-description,  duties  had 
to  be  paid  on  them  to  the  great  disarrangement  of 
that  branch  of  the  business  that  used  them.  A 
tax  on  a  raw  material  has  this  peculiarity,  that  it 
has  to  be  advanced  at  the  outset,  and  becomes 
with  the  profits  on  it  a  rapidly  accumulating  ele- 
ment in  the  ultimate  price  of  the  product,  inas- 
much as  this  tax  with  profits  has  to  be  advanced 
over  and  over  again  as  many  times  as  the  product 
changes  hands  between  inception  and  ultimate 
sale.  Tariff-taxes  are  quite  apt  to  be  laid  on  raw 
materials,  and  increase  thereby  the  cost  of  pro- 
duction of  all  the  commodities  into  which  these 
materials  enter.  The  duty  on  pig-iron,  although 
it  was  reduced  in  1872  from  $9.00  to  §7.00  per 
ton,  was  and  is  one  of  the  worst  duties  in  our  tar- 
iff. (1.)  It  was  needless.  Pig-iron  had  been  made 
in  this  country  at  a  profit  for  more  than  150  years 
before  it  bore  any  duty  at  all.  It  was  first  dutied 
in  the  tariff  of  1816.  (2.)  It  has  been  variable. 
The  rate  has  been  at  7  different  figures  between 
the  years  1842  and  1880 ;  and,  as  pig-iron  is  raw 
material  to  hundreds  of  commodities,  it  is  plain 


COMMERCE.  189 

that  an  unstable  cost  of  production  of  all  these  ima 
been  one  consequence  of  the  duties ;  and,  as  insta- 
bility of  cost  means  miscalculations  and  bankrupt- 
cies, that  even  the  production  of  pig-iron  itself 
would  have  been  more  prosperous  without  any 
duty  at  all.  (3.)  It  has  raised  the  domestic  price 
of  pig-iron.  It  was  falsely  claimed  that  high 
duties  imposed  for  a  time  would  so  stimulate  the 
domestic  production  that  the  price  here  would  be 
lower  than  that  abroad.  Years  upon  years  of  high 
duties  gave  us  no  lower  prices  of  pig-iron  than  the 
price  was  in  1850,  but  on  the  contrary  the  average 
price  for  14  years  (1860-74)  was  85.22  per  ton 
higher  than  the  average  for  14  years  under  the  tar- 
iff of  1846-60.  A  higher  duty  on  pig-iron  has 
never  failed  to  give  a  higher  average  price  to  pig- 
iron  hi  our  markets,  and  a  lower  duty  has 
never  failed  to  be  followed  by  a  lower  average 
price.  The  motives  of  the  men  who  have  succeed- 
ed in  getting  the  duties  put  on,  their  piercing 
clamor  when  it  has  been  proposed  to  take  the 
duties  off,  and  the  actual  price-lists  of  the  markets, 
all  tell  the  same  story :  nevertheless,  the  instabil- 
ity and  uncertainties  of  prices  under  protection 
rarely,  if  ever,  foster  the  protected  industry  so 
much  in  the  long-run  as  an  assured  freedom  would 
foster  it  in  connection  with  the  freedom  of  all 
other  industries.  The  steadiness  of  prices  under 
free  trade  as  compared  with  their  variability 
under  protection  is  exceedingly  well  illustrat- 
ed also  in  the  prices  of  breadstuff  in  Great 
Britain  before  and  since  the  abolition  of  the  corn- 


190  POLITICAL  ECONOMY. 

laws.  The  corn-laws  were  protection  applied 
to  British  agriculturists  in  the  shape  of  heavy 
duties  levied  on  the  importation  of  foreign  grain ; 
after  a  good  season,  grain  was  reasonably  cheap, 
the  presumption  being  that  the  islands  could  feed 
their  own  population  in  the  good  years ;  but  after 
a  bad  harvest  or  two,  prices  rose  frightfully,  poor 
people  starved,  food  had  to  be  imported  and  pay 
the  duties,  and  domestic  grain  rose  of  course  to 
the  price  of  the  foreign  with  duties  added.  In 
March,  1801,  wheat  in  England  was  156  shillings 
a  quarter,  barley  90s.,  and  oats  47s.  In  August, 
1812,  wheat  was  155s.,  while  in  July,  1814,  it  was 
only  68s.  Such  alternations  in  the  price  of  food 
are  fearful,  and  are  the  natural  result  of  such  pro- 
tective legislation ;  while,  since  the  trade  in  corn 
has  been  free,  the  price  never  varies  more  than  a 
few  pence  to  the  bushel,  because  any  deficiency  in 
the  native  harvest  is  instantly  supplied  from  the 
United  States  or  from  the  Baltic  provinces.  Free 
trade  gives  stability  to  all  costs  of  production,  and 
to  all  prices,  so  far  as  it  is  possible  in  the  nature 
of  things  to  have  stability  in  values.  The  com- 
merce of  the  world  is  like  the  tides  of  the  ocean, 
—  apparently  disturbing,  yet  really  regulating,  the 
natural  level. 

6.  Free  trade  is  the  friend  of  the  so-called  laboring 
classes,  while  protection  is  their  enemy.  This  might 
be  inferred  with  certainty  from  the  nature  of  the 
case,  even  if  experience  had  not  confirmed  it  over 
and  over  again.  The  value  of  things  produced 
depends  in  part  upon  the  demand  for  them,  and  it 


COMMERCE.  191 

always  must  be  for  the  advantage  of  all  those  who 
contribute  towards  the  production  of  any  thing, 
that  the  demand  for  that  product  be  as  strong  as 
possible.  The  wages-class  are  as  much  interested 
in  having  a  strong  demand  for  the  products  they 
help  to  create  as  are  the  capitalist-class,  since 
wages  quite  as  much  as  profits  come  out  of  the 
proceeds  of  the  sale  of  those  products.  What- 
ever, then,  tends  to  increase  the  demand  for  mate- 
rial products  in  general,  must  tend  to  the  benefit 
of  the  wages-class.  But  free  trade  must  increase 
the  demand  for  such  products,  inasmuch  as '  it 
opens  up  for  them  a  world-market  in  the  place  of 
a  one-country  market.  Free  trade  allows  foreign- 
ers to  bring  in  their  products  freely  to  exchange 
against  native  products ;  foreign  products  cannot 
be  bought  beyond  the  point  at  which  native  prod- 
ucts are  sold ;  money  may  come  in  as  a  medium  in 
both  exchanges,  as  will  be  explained  in  the  next 
chapter,  but  that  does  not  alter  the  fact  that  at 
bottom  it  is  an  exchange  of  products  other  than 
money  against  products  other  than  money ;  really 
the  only  reason  why  foreigners  bring  in  their 
products  is  to  get  the  native  products  in  return ; 
t  herefore,  the  demand  for  native  products  is  neces- 
sarily increased  by  opening  the  ports  freely  to 
foreign  products;  and,  therefore,  the  wages  of 
those  who  labor  on  the  native  products  now  in  en- 
l.anced  demand  must  be  enhanced  also.  I  invite 
any  protectionist,  who  feels  disposed  to  try  his 
hand  at  it,  to  break  in  two  this  simple  chain  of 
reasoning. 


192  POLITICAL  ECONOMY. 

I  admit,  that  branches  of  business  artificially 
brought  in  and  sustained  by  protective  duties,  in 
competition  with  countries  in  which  nature  rather 
than  law  favors  the  production,  may  collapse  in 
the  healthful  shock  of  free,  exchange,  because  they 
are  too  sickly  for  any  healthful  shock  of  any  kind. 
Why  should  they  not  collapse  ?  There  is  no  loss, 
on  the  whole,  in  their  collapsing.  They  are  un- 
profitable branches  of  business  by  confession,  oth- 
erwise they  would  not  demand  to  be  supported 
out  of  the  resources  of  the  community,  that  is  to 
say,  by  taxing  their  neighbors  in  order  to  continue 
to  exist.  The  sooner  all  unprofitable  branches  of 
business  cease  to  be  prosecuted  in  any  country,  the 
better  for  that  country  and  for  the  world.  The 
prospect  of  ultimate  profit  under  natural  condi 
lions  is  sufficient  inducement  to  try  all  needful 
experiments  in  new  directions  of  production ;  and 
the  proper  test  of  the  propriety  of  continuing  any 
branch  of  industry  beyond  the  period  of  experi- 
ment is  the  natural,  God-appointed  test  of  free 
exchanges.  All  branches  of  industry  are  equally 
natural,  provided  only  they  are  profitable,  pro- 
vided only  they  are  adapted  to  the  circumstances 
and  conditions  under  which  they  start.  Agricul- 
ture is  no  more  natural  than  manufactures,  inas- 
much as  agriculture  itself  cannot  go  forward 
without  implements,  and  without  the  means  of 
clothing  and  housing  the  tillers  of  the  soil.  The 
point  is,  that  men  should  follow  natural  condi- 
tions, and  enter  upon  branches  of  business  just  so 
fast  as  they  become  profitable,  and  just  so  far  as 


COMMEECE.  193 

all  the  circumstances  favor  them.  Such  branches 
of  business,  and  no  others  have  any  economic 
right  to  exist,  instead  of  being  harmed  by  free 
trade,  are  necessarily  made  more  profitable  by  it, 
for  such  is  the  diversity  in  natural  conditions  and 
customs  within  the  countries  that  each  in  many 
things  has  the  advantage  over  all  the  rest,  and  the 
opportunity  of  each  to  sell  to  all  the  rest  as  well 
as  at  home  the  products  in  which  it  has  an  advan- 
tage makes  a  demand  for  such  products  which 
cannot  be  otherwise  than  favorable  to  the  laboring 
classes. 

As  an  illustration  of  the  effect  of  free  trade  in 
increasing  the  demand  for  native  products,  I  will 
give  a  few  figures  from  the  official  Reports  of 
Great  Britain  and  France.  In  Great  Britain, 
between  1854  and  1868,  exports  in  general  in- 
creased over  72  per  cent  per  capita ;  exports  ot 
cotton,  nearly  threefold ;  of  woollen  manufactures, 
fourfold ;  of  linen,  fourfold ;  of  iron  and  steel, 
fivefold;  of  leather,  sixfold;  of  haberdashery, 
nearly  sevenfold ;  of  woollen  yarn,  eightfold ;  and 
of  machinery,  tenfold.  In  the  same  interval,  im- 
ports in  general  increased  almost  66  per  cent  per 
capita.  Under  the  commercial  treaty  with  Eng- 
land, comparing  1860  with  1868,  the  volume  of 
French  commerce  increased  over  37  per  cent; 
exports  to  England,  over  155  per  cent ;  of  butter, 
more  than  twenty-fold;  of  eggs,  nearly  sixfold; 
of  wines,  fivefold ;  of  silks,  woollens,  and  cottons, 
nearly  threefold.  Whose  labor  produced  these 
enormously  increased  exports?  Whose  wages 


194  POLITICAL  ECONOMY. 

were  ever  reduced  by  an  enlarged  demand  for 
the  products  of  labor?  The  truth  is,  that  free 
trade  not  only  increases  the  wages  of  laborers 
through  an  enlarged  demand  for  their  products, 
but  also  brings  comforts  and  conveniences  home  to 
thousands,  who,  under  a  restrictive  policy,  would 
have  to  go  without  them.  French  butter  and 
French  eggs  are  now  almost  as  cheap  on  the  Eng- 
lish side  of  the  Channel  as  on  the  other. 

As  a  matter  of  fact,  too,  a  matter  of  daily 
observation  and  testimony,  the  condition  of  the 
laboring  classes  both  in  Great  Britain  and  France 
has  greatly  improved  as  the  restrictive  systems  of 
those  countries  have  been  gradually  broken  down. 
John  Bright  says,  that  the  wages  of  English  labor- 
ers in  all  skilled  employments  have  risen  at  least 
25  per  cent  under  and  in  consequence  of  free  trade, 
while  hours  of  labor  have  been  abridged  and 
staple  articles  of  food  reduced  in  price.  In  four 
years  from  1870  to  1874,  paupers  decreased  in 
England  23  per  cent.  Not  to  speak  of  Germany 
and  other  large  nations,  the  little  State  of  Tus- 
cany in  Italy  affords  a  most  instructive  example, 
because  exhibited  on  a  small  scale  apart  from 
other  influences,  of  the  injurious  effects  of  protec- 
tion, and  the  marvellous  power  of  recuperation 
under  freedom.1  Never  better  than  in  Tuscany 
was  the  wisdom  learned  out  of  bitter  experience, 
—  the  wisdom  once  compressed  into  the  homely 
sentence,  "Just  let  the  people  look  after  their 

1  History  of  Free  Trade  in  Tuscany,  by  James  M.  Stuart 
London,  1876. 


COMMERCE.  195 

own  business  ;  the}7  know  it  better  than  any  min- 
ister of  state." 

Not  only  does  free  trade  open  up  to  the  so- 
called  laboring  classes  better  fields  of  labor  in 
order  to  supply  broader  markets,  but  also  the 
removal  of  protective  duties  lowers  the  price  of 
most  of  the  commodities  they  are  accustomed  to 
buy.  The  laborer  gets  more  work  and  higher 
wages  under  freedom;  and,  what  is  better,  each 
dollar  he  earns  goes  further  in  purchasing.  The 
sole  purpose  in  laying  the  protective  duty  is  to 
raise  the  price  of  the  domestic  product;  those 
products  are  preferred  for  protection  that  are  con- 
sumed by  the  masses  of  the  people,  such  as 
woollens,  cottons,  all  forms  of  iron  goods,  lumber, 
oommon  window-glass,  lead  pencils,  and  cheap 
carpets;  and  accordingly,  when  all  such  duties 
are  thrown  off,  the  prices  of  the  common  necessa- 
ries of  life  go  down  as  a  matter  of  course,  and 
of  course  as  a  matter  of  fact.  If  not,  why  do 
protectionists  object  to  the  removal  of  the 
duties? 

It  is  because  protective  duties  are  designed  to 
raise  prices,  and  do  raise  prices,  that  the  instincts 
of  the  common  people  are  opposed  to  such  duties, 
and  that  the  interests  of  protectionists  are  op- 
posed to  their  removal.  As  a  good  instance  of 
how  prices  go  down,  as  protection  goes  of.  let  us 
look  at  the  quinine  duties  abolished  by  Con- 
gress in  1879.  In  April  of  that  year,  sulphate 
of  quinine  was  quoted  in  the  Druggist's  Circular 
at  $3.80  to  $4  per  ounce.  Powers  and  Weight- 


196  POLITICAL  ECONOMY. 

man,  manufacturing  chemists  of  Philadelphia, 
had  a  virtual  monopoly  of  the  trade  under  the 
twenty  per  cent  duty,  and  protested  that  its 
removal  would  drive  them  out  of  the  business 
without  making  quinine  any  cheaper.  The  law 
abolishing  the  duty  went  into  effect  July  1,  and 
quinine  was  quoted  that  day  at  $3.40  per  ounce. 
In  December  it  declined  to  $2.60,  after  which  the 
Russian  Government  became  a  large  purchaser, 
raising  the  price  to  about  $3.25  in  April,  1880, 
which  is  about  such  a  reduction  as  the  removal 
of  the  duty  would  lead  us  to  expect.  This  fall 
of  price  took  place,  too,  in  the  face  of  a  disastrous 
war  between  the  South-American  States  that 
produce  cinchona  bark,  the  raw  material  of 
quinine.  The  chemists  referred  to  did  not,  go  out 
of  the  business,  —  quite  the  reverse,  —  although 
somebody  presented  a  memorial  to  Congress,  in 
the  spring  of  1880,  begging  for,  at  least,  a  ten 
per  cent  duty  on  quinine. 

7.  Free  trade  defends  older  and  worthier  interests 
than  those  that  have  become  vested  under  protection. 
A  minority  of  the  Ways  and  Means  Committee 
of  Congress  reported  adversely  in  May,  1880,  to 
the  lessening  of  tariff-taxes,  ostensibly  because 
certain  interests,  like  the  glass,  iron,  and  woollen 
interests,  have  been  more  or  less  built  up  under 
these  protective  taxes  since  1860.  What  if  they 
have  been  thus  built  up  ?  At  whose  expense  have 
they  been  built  up  ?  Has  not  agriculture  as  much 
claim  to  the  forbearance  of  Congress  as  glass- 
making,  for  example,  has  to  its  special  favor? 


COMMERCE.  197 

• 

Congress  cannot  favor  one  interest  without  laying 
a  tax-burden  on  other  interests  ;  and  the  point  is, 
that  these  interests,  and  especially  agriculture  the 
cliief  of  them,  are  quite  as  old  and  quite  as 
worthy,  and  quite  as  respectable  in  asking  to  be 
let  alone,  as  any  special  interest  is  that  begs  the 
privilege  of  taxing  its  neighbors  for  its  own  up- 
building. If  such  special  interest,  having  once 
got  such  taxes  put  on  others  for  its  own  benefit, 
becomes  thereby  a  "vested"  interest,  if  such 
taxes  become  "  sacred  "  by  mere  usage,  then  they 
never  can  be  rightfully  thrown  off!  That  argu- 
ment, if  admitted,  will  last  too  long!  The  valid- 
ity of  the  argument  is  utterly  denied.  An  origi- 
nal wrong  never  becomes  an  ultimate  right  by 
lapse  of  time :  no  interest  can  become  vested  by 
preying  on  other  interests,  and  .especially  on  in- 
terests older,  worthier,  and  more  self-respecting. 
Dr.  Eliot  in  his  History  of  the  United  States,1 
while  discussing  the  first  national  tariff,  confesses 
this  conflict  and  wrong:  "The  interests  of  the 
Northern  industry,  its  shipping,  its  commerce,  and 
its  manufactures,  called  for  a  very  different  policy 
on  the  part  of  the  government, /ram  that  demanded 
ly  the  Southern  agriculture."  That  original  wrong, 
afterwards  repeated  and  aggravated,  rankled  in 
the  breasts  of  the  wronged  till  it  developed  the 
Calhoun  theory  of  the  Union,  and  issued  in  the 
Civil  War.  The  only  proper  way  to  deal  with 

1  Page  283.  Compare  with  this  the  strange  remark,  — too 
empty  and  foolish  for  such  a  thoughtful  writer,  —  concluding  thf 
first  paragraph  of  page  280. 


198  POLITICAL  ECONOMY. 

• 

taxes  that  were  put  on  the  many  for  the  benefit 
of  the  few  is  to  cut  short  their  career  of  mischief 
by  immediate  abolition. 

As  free  trade  can  only  appeal  to  the  sense  of 
justice,  and  the  broad  and  generous  impulses  of  the 
masses  of  men;  and  as  no  man  can  have  any 
motive  aside  from  these  impulses,  and  aside  from 
his  own  liability  to  pay  an  unjust  tax,  to  advo- 
cate free  trade ;  and  as  no  man  is  specially  autho- 
rized to  voice  the  wants  and  the  rights  of  the 
poor :  while,  on  the  contrary,  protection  from  its 
very  nature  makes  a  strong  appeal  to  the  selfish 
greed  of  a  comparatively  small  number  of  men,  at 
whose  instance  protective  duties  are  always  put 
on,  if  at  all,  and  who  can  easily  combine,  and  do 
combine,  to  carry  out  their  ends ;  it  is  not  strange, 
looking  at  human  nature  as  it  is,  that  "  Protec- 
tion "  is  able  to  hold  its  own  for  a  time,  against 
the  general  interests,  even  in  an  enlightened  coun- 
try, and  sometimes  also  to  get  back  its  own  for  a 
time  even  after  the  true  system  has  been  once 
entered  upon.  Protectionists  are  possessed  of 
every  art  of  the  lobby  ;  they  seem  always  to  have 
plenty  of  money,  and  to  know  how  to  use  it  for 
their  own  ends;  being  obliged  to  "make  the 
worse  appear  the  better  reason,"  they  become 
adepts  in  sophistry,  which  often  seems  to  deceive 
themselves ;  and  .they  sometimes  have  the  bold- 
ness to  appeal  to  popular  demonstrations,  as  when 
"a  grand  picnic  to  enforce  the  theories  of  pro- 
tection" was  held  in  Ohio,  June  5,  1880!  All 
this  is  indeed  strong  language;  but  Political 


COMMERCE.  199 

Economy,  as  the  Science  of  Sales,  has  no  pa- 
tience, and  ought  to  have  no  patience,  with  a 
narrow  scheme  whose  end  is  to  lessen  sales  and 
make  their  terms  more  onerous.  It  is  not  a  mere 
difference  of  opinion,  it  is  the  existence  of  Politi- 
cal Economy  as  a  body  of  scientific  principles, 
that  is  involved  in  this  matter.  If  protection  be 
sound,  there  is  and  can  be  no  science  of  Political 
Economy :  happily  there  is  such  a  science. 

But  all  this  also  furnishes  an  adequate  explana- 
tion of  the  apparent  re-actions  from  free  trade 
from  time  to  time,  like  that  in  France  after  the 
German  War,  and  like  that  in  Germany  some 
years  later.  These  re-actions,  however,  were 
moderate,  and  will  doubtless  prove  temporary. 
English  re-actions,  though  often  confidently  pre- 
dicted, have  never  come  in  sufficient  force  to  make 
any  stir  in  the  House  of  Commons.  English  re-ac- 
tions go  hard  against  such  facts  as  these,  of  which 
British  official  statistics  are  full ;  namely,  the  ex- 
ports of  British  products  advanced  from  £ 63,596,- 
000  in  1849,  to  £256,257,000  in  1872,  an  increase 
of  303  per  cent ;  arid,  what  is  still  more  illustrative 
of  the  mutual  benefits  of  freedom,  the  tonnage  of 
vessels  entered  and  closed  in  British  ports  in- 
creased between  1840  and  1878, — foreign  tonnage 
452  per  cent,  and  British  tonnage  443  per  cent.1 

7.  Free  trade  has  the  sanction  of  all  ages  of  the 
world,  while  protection  is  at  once  a  novelty  and  a 
decrepitude.  Antiquity,  though  perfectly  familiar 
with  customs'  duties,  knew  nothing  whatever  of 

1  Financial  Reform  A-lmanack  for  1880,  p.  181. 


200  POLITICAL  ECONOMY. 

the  doctrine  of  protection.  Neither  did  the 
Middle  Ages.  England,  in  the  course  of  the 
seventeenth  century,  developed  the  system,  which, 
in  the  course  of  the  nineteenth,  she  loathingly 
rejected.  The  new  centuries  are  certainly  bring- 
ing in  many  new  and  good  things ;  there  is  con- 
stant progress  in  science  and  in  the  arts  of  life ; 
even  in  the  realm  of  exchange,  new  things  of 
great  importance,  like  the  check  and  the  clearing- 
house, have  come  in  and  been  acknowledged  to  be 
good;  the  charge  of  novelty  is  not  necessarily 
conclusive  against  any  thing  —  many  new  things 
are  good,  and  many  old  things  are  bad  ;  but,  then, 
on  the  other  hand,  trade  is  very  old,  all  nations 
have  engaged  in  it  from  the  beginning,  some  grew 
very  rich  by  means  of  it,1  and  all  experienced 
the  reciprocal  benefits  of  it ;  money,  as  a  medium 
of  exchange,  was  invented  before  Abraham's  day, 
and  there  were  in  his  day  certainly,  and  probably 
long  before,  as  there  have  been  in  every  generation 
since,  merchants  as  a  class;  the  minds  of  men 
were  employed  about  trade,  they  must  have  per- 
ceived the  grounds  of  its  utility,  and  though  they 
did  not  develop  the  science  of  it,  though  they 
made  many  mistakes  about  it,  yet  it  seems  strange, 
if  there  be  any  truth  in  the  matter  of  protection, 
since  that  concerns  the  fundamentals  of  trade, 
that  no  one  of  the  ancients  should  have  had  even 
a  glimmer  of  that  truth. 
Aristotle  threw  out  a  good  deal  of  light  in 

1  See  the  27th  chapter  of  the  Prophet  EzekieL 


COMMERCE.  201 

various  directions  upon  the  subject  of  Political 
Economy,  but  it  never  occurred  to  that  gifted 
thinker  that  it  would  be  a  good  thing  to  try  to 
stop  by  statute  a  mutually  profitable  trade 
between  nations!  There  was  plenty  of  hostility 
between  nations  in  ancient  and  mediaeval  times, 
and  often  great  restrictions  on  intercourse  between 
them,  but  I  find  no  hint  coming  down  from  those 
times  of  the  central  point  of  modern  protection, 
namely,  that  it  may  be  ultimately  profitable  to 
curtail  by  legislation  a  presently  profitable  inter- 
national trade.  Under  all  the  circumstances,  it  is 
against  protection,  that  it  never  was  thought  of 
until  the  middle  of  the  seventeenth  century.  It 
is  against  protection,  that  it  had  its  origin  in  the 
bitter  rivalry  and  hostility  of  England  and  Hol- 
land. It  is  against  protection,  that,  having  been 
thoroughly  tested  by  Great  Britain  for  almost  two 
centuries,  it  is  now  acknowledged  through  every 
organ  of  public  opinion  there,  that  the  system  was 
always  maintained  at  a  loss.  It  is  against  protec- 
tion, that  other  nations,  having  copied  the  system 
from  England  and  tried  it  long,  are  only  just 
behind  England  in  abandoning  it  in  scorn. 

It  is  against  protection,  that  its  influence  is 
waning  in  every  enlightened  country  in  the  world. 
It  is  against  protection,  that  the  United  States, 
in  which  it  has  been  dominant  for  two  decades, 
have  yet  recently  made  a  free-trade  treaty  with 
the  Sandwich  Islands,  and  are  likely  soon  to  make 
another  with  Canada.  It  is  against  protection. 


POLITICAL   ECONOMY. 


tl  iat  the  Mercantile  System  so-called  —  the  doo- 
time  of  the  Balance  of  Trade  —  in  connection  with 
v\  liich  restrictive  tariffs  had  their  birth,  has  long 
ago  been  discarded  as  false  by  all  thinkers,  states- 
men, and  nations.  In  one  word,  it  is  against  pro- 
tection, that  it  came  in  so  late  and  is  going  out  so 
early.  On  the  other  hand,  it  is  altogether  in  favor 
of  free  trade,  that  it  has  always  been  in  the  world 
and  always  will  be,  and  that  it  has  fought  and  is 
fighting  in  a  dozen  different  nations  a  good  fight 
with  its  great  enemy,  and  has  already  substantially 
won  the  battle. 

9.  Free  trade  is  in  harmony  with  the  spirit  of 
progress,  while  protection  is  directly  opposed  to  it. 
It  will  be  admitted  by  all,  that  the  past  progress 
of  the  world  has  been  in  the  direction  of  freedom. 
The  great  struggles  have  been  around  three  points 
as  centres ;  first,  freedom  of  person ;  second,  free- 
dom of  opinion ;  and  third,  freedom  of  exchange. 
As  the  result  of  the  struggle  around  the  first 
point,  personal  slavery  has  now  mainly  disap- 
peared from  the  earth;  as  the  result  of  the 
straggle  around  the  second  point,  the  freedom  of 
opinion  and  its  expression,  and  especially  of  reli- 
gious opinion,  has  gained  great  triumphs  in  all 
lands,  although  much  yet  remains  to  be  done 
before  its  complete  triumph  is  assured ;  while,  as 
the  result  of  the  struggle  around  the  third  point, 
one  barrier  after  another  has  given  way,  one 
monopoly  after  another  has  been  conquered,  until 
now  it  is  pretty  generally  agreed  that  freedom  of 


COMMERCE. 


203 


exchange  is  just  as  sacred  as  freedom  of  persoo 
and  of  opinion,  and  the  struggle,  which  is  in 
entire  harmony  with  the  others,  will  certainly 
never  cease  until  the  liberty  of  contract  and  deliv- 
ery, subject  only  to  conditions  of  morals  and 
health  and  revenue,  shall  be  international  and 
universal.  The  spirit  of  free  trade  is  the  spirit 
of  peace  and  good-will.  It  is  the  spirit  of  self- 
interest  certainly,  but  then  it  is  an  enlightened 
self-interest  that  sees  that  another's  loss  cannot 
permanently  be  one's  own  gain.  It  is  the  spirit  of 
give  and  take.  It  is  the  spirit  of  live  and  let  live. 
It  is  a  lower  and  yet  beneficent  application  of  the 
apostolic  words,1  — "  Look  not  every  man  on  his 
own  things,  but  every  man  also  on  the  things  of 
others."  It  is  in  harmony  with  the  tendencies 
and  ongoing  of  things  in  this  world.  It  has  in  it 
all  the  elements  of  stability  and  permanency.  It 
is  itself  a  sign  of  progress,  and  it  paves  the  way  to 
progress  in  other  directions. 

I  have  recently  met  with  a  passage  in  one  of 
our  daily  newspapers,2  which  is  so  just  in  senti- 
ment and  so  clear  in  expression,  that  I  will  quote 
it  entire: — "It  is  a  matter  of  notoriety,  demon- 
strable from  contemporaneous  English  history  and 
social  statistics,  that  the  public  morals  of  that 
country  have  improved  along  with  its  prosperity 
ever  since  the  principle  of  free,  unshackled  trade 
was  adopted.  It  was  the  first  of  the  long  series 
?f  reforms  that  have  characterized  English  legisla- 


Phil,  ii.  4. 


8  Chicago  Tribune. 


204  POLITICAL   ECONOMY. 

tion  during  the  past  quarter  of  a  century.  It  was 
followed  by  an  improvement  in  all  kinds  of  taxa- 
tion, until  the  revenue  is  raised  upon  the  smallest 
number  of  articles  of  luxury  and  to  the  relief  of 
the  largest  number  of  people.  It  opened  the  way 
for  the  growth  of  the  liberal  sentiment  which  has 
encouraged  social,  political  and  religious  freedom. 
The  extension  of  educational  facilities,  the  dis- 
establishment of  the  Irish  Church,  the  liberaliza- 
tion of  suffrage,  the  establishment  of  free  schools, 
are  all  reforms  that  never  would  have  been  realized 
if  the  power  of  reform  had  not  first  asserted  itself 
in  the  derogation  of  the  injustice  of  high  tariff. 
Incident  to  these  and  other  measures  for  the  ame- 
lioration of  the  condition  of  the  English  people 
have  been  the  growth  of  intelligence  and  educa- 
tion, the  increased  power  of  enlightened  public 
opinion,  the  improvement  and  purification  of  the 
civil  service  and  the  decrease  of  crime,  until  to-day 
the  English  Government  is  cited  as  a  model  in  its 
assurance  of  individual  rights  and  personal  liberty, 
as  the  English  people  are  noted  for  the  high  de- 
gree of  prosperity.  All  this  has  not  only  been 
accomplished  under  freedom  of  trade,  but  free 
trade  was  the  starting-point  from  which  these  con- 
ditions took  their  impetus." 

On  the  other  hand,  protection  cannot  bear  a 
searching  inquiry  into  the  motives  of  the  men 
who  practically  get  the  protective  duties  put  on. 
They  are  thinking  only  of  an  artificial  price  for 
'heir  particular  product,  and  not  at  all  of  the 


COMMERCE.  205 

other  far-reaching  consequences  of  their  action. 
That  some  of  their  fellow-citizens  are  cruelly 
taxed  as  consumers  in  consequence  of  their  action, 
that  others  of  their  fellow-citizens  lose  in  part  or 
in  whole  the  market  for  their  products  in  conse- 
quence of  their  action,  and  that  foreigners  lose 
also  in  part  or  in  whole  their  market  in  conse- 
quence of  their  action,  weighs  but  little  in  the 
mind  of  the  practical  protectionist.  I  have  it 
on  the  very  highest  authority,  —  the  authority  of 
experienced  men  who  have  served  at  different 
times  on  the  Ways  and  Means  "Committee  at 
Washington,  —  that  the  individuals  and  delega 
tions  who  come  before  that  Committee  in  behalf 
of  new  or  higher  protective  duties,  come  in  tire 
barest  selfishness,  without  a  thought  or  care  of 
anybody's  interests  but  their  own.  Can  a  system 
like  this,  so  shortsighted  and  greedy,  so  obstruc- 
tive to  natural  and  wholesome  tendencies,  building 
so  little  on  permanent  elements  in  man  and  nature, 
claim  to  be  a  part  of  the  progress  of  the  world  ? 
Can  restriction  hold  its  own  in  a  fair  comparison 
with  freedom  ? 

It  is  not  needful,  in  a  book  like  the  present,  to 
go  further  into  detail  with  the  arguments  for  a 
free  commerce,  or  to  refute  in  detail  the  arguments 
for  protection.  Enough  has  been  said  to  indicate 
the  profound  conviction  of  the  writer,  and,  I  ven- 
ture to  1  ipe  also,  enough  to  determine  the  delib- 
erate judgment  of  the  reader,  that  international 
commerce  is  good;  that  God  intended  it  as  a  part 


206  POLITICAL   ECONOMY. 

of  the  education  and  well-being  of  mankind ;  that 
restrictions  on  it,  except  in  the  three  cases  already 
so  often  mentioned,  are  economically  and  morally 
evil ;  that  a  tariff,  if  it  be  had  at  all,  should  be 
had  as  an  instrument  of  simple  taxation  only  ;  and 
that  a  protective  tariff  is,  and  from  its  nature  must 
be,  a  cause  of  loss  to  other  nations  indeed,  but  of 
greater  loss  to  the  nation  imposing  it. 

The  history  of  the  Colonies,  which  now  form 
some  of  the  States  of  this  Union,  and  the  history 
of  the  Union  itself,  confirms  in  a  striking  manner 
the  justness  of  these  general  conclusions.  That 
history  makes  ridiculous  the  plea  that  artificial 
stimulus  is  needful  in  order  to  bring  in  new  indus- 
tries into  any  country.  Most  of  the  great  indus- 
tries of  this  country  sprang  up,  not  only  without 
any  artificial  stimulus,  but  also  in  spite  of  the 
hostility  and  vigilance  of  the  mother-country. 
As  early  as  1638,  the  manufacture  of  linen,  cotton, 
and  woollen  cloths  was  commenced  at  Rowley  in 
the  State  of  Massachusetts. 

The  mother  country  envied  the  Colonies  the 
profits  of  the  manufacture  of  woollens,  and  as 
early  as  1698  laid  a  prohibition  upon  the  exporta- 
tion of  colonial  woollens,  even  from  one  Colony 
to  another.  Parliament  crowned  its  many  acts  of 
interference  with  colonial  woollens  by  prohibiting 
in  1732  (the  birth-year  of  Washington)  the  ex- 
portation of  hats.  Ship-building,  commenced  in 
1631,  was  firmly  established  as  an  industry  by  the 
first  generation  of  civilized  men  inhabiting  New- 


COMMERCE.  207 

England  shores.  Brick-making,  glass-works,  and 
the  manufacture  of  salt,  were  all  begun  in  Massa- 
chusetts before  1640.  Tannery  and  shoe-making 
began  about  that  time,  and  within  20  years  boots 
and  shoes  became  articles  of  export ;  while  in 
104  3  the  younger  Winthrop  established  iron-works 
at  Braintree  and  Lynn,  in  the  same  State,  which, 
after  some  losses,  were  successfully  prosecuted.1 
In  1721  New  England  alone  had  six  furnaces  and 
nineteen  forges,  and  there  were  many  others  in 
Pennsylvania  and  Virginia.  Parliament  enacted 
in  1750  that  no  more  mills  should  be  erected  in 
America  for  slitting  or  rolling  iron,  or  forges 
for  hammering  it,  or  furnaces  for  making  steel ; 
and  in  certain  cases,  agents  of  the  crown  were 
authorized  to  tear  down  such  establishments  as 
"  nuisances." 

How  far  all  the  arts  of  navigation  had  been 
carried  in  the  Colonies  before  the  Revolution,  any 
one  may  read  in  Burke's  famous  speech  on  Con- 
ciliation with  America.  How  far  the  products  of 
the  loom,  the  forge,  and  the  anvil,  were  already 
being  exported,  in  spite  of  British  legislation,  to 
other  countries,  any  one  may  see  in  Lord  North's 
last  proposals  and  concessions  to  ward  off  the 
Revolution.  The  history  of  this  country  from  the 
fiiot  day  to  this  day  is  a  continuous  refutation  of 
the  pleas  and  arguments  for  restraining  its  foreign 
trade. 

1  See  9th  Annual  Report  Mass.  Bureau  of  Statistics  and 
Labor,  1878. 


208  POLITICAL  ECONOMY 

• 

We    may  group    as  follows  the  fundamental 
points  of  the  present  chapter :  — 

1.  Commerce   is   an   exchange   of  goods  for   the 
mutual  BENEFIT  of  the  respective  owners. 

2.  A  free  commerce  does  not  oblige  parties  to  ex- 
change, but  merely  PERMITS  them  to  do  so. 

3.  TJie   Constitution  of  the   United  States  GOES 
VERY  FAR  towards  securing  to  all  its  citizens  the 
benefits  of  a  free  commerce. 

4.  A  tariff  is  a  scheme  of  TAXES  levied  by  a  gov- 
ernment on  imported  goods. 

5.  Revenue  and  protective  tariffs  are   the   OPPO 
SITES  of  each  other  in  all  essential  points. 

6.  Protective   tariffs   are   designed   to   PREVENT 
revenue,  and  to  gather  spoil  from  the  many  into  the 
pockets  of  the  few. 

7.  AGRICULTURE    and    the   unorganized  masses 
9f  the  people  are  the  chief  prey  of  Protection. 

'  8.   Opening  ports  to  foreign  products  is  opening 
MARKETS  for  domestic  products. 

9.  FREE  TRADE  maximizes  products,  harmonizes 
with  Providence,  means  abundance,  recognizes  rights, 
makes  stable  the  cost  of  production,  is  the  friend  of 
the  laboring  classes,  defend*  from  attack  the  worthi- 
est interests,  has  the  sanction  of  all  ages  of  the  world, 
and  is  one  with  the  spirit  of  progress. 

10.  History  affirms  that  all  industries  are  equally 
NATURAL ;  and  hence  no  one  has  the  right  to  subsist 
at  the  expense  of  the  others. 

11.  Political  Economy  as   the   Science   of  Sales 
MUST  denounce  protection,  which  deranges  and  cur- 
tails  them. 


MONEY.  209 


CHAPTER  IV. 

MONEY. 

MONEY  is  always  a  pleasant  topic  to  discourse 
about.  Through  the  influence  of  association,  the 
very  word  has  come  to  have  an  agreeable  sound ; 
and  the  thing  itself,  especially  in  the  form  of  gold 
or  silver  coin,  is  an  object  of  beauty,  as  well  as 
of  -great  utility.  Even  a  Bank  of  England  note, 
which  rarely  gets  much  soiled  by  usage,  inasmuch 
as,  once  returned  to  the  bank,  it  is  never  re-issued, 
and  its  average  life  is  computed  to  be  not  more 
than  three  days,,  is  not  a  disagreeable  thing  to 
look  at ;  neither  are  our  present  national  bank- 
bills  and  greenbacks  offensive  to  the  eye,  until,  by 
much  usage,  they  become  dirty  and  mutilated, 
and  even  then  they  are  still  convenient  things  to 
have.  Money,  too,  almost  always  has  upon  it  in 
some  form  the  symbol  of  its  nationality,  it  bears 
the  image  and  superscription  of  Caesar,  and  so  be- 
comes associated  with  patriotic  love  of  country. 

Another  thing  that  gives  interest  to  the  subject 
of  money,  is  the  fact  that  it  is  a  human  invention, 
and  therefore  completely  intelligible,  inasmuch  as 


210  POLITICAL  ECONOMY. 

men  can  always  understand  what  men  Lave  de- 
vised. Undoubtedly,  the  conditions  of  exchange 
were  so  pre-ordained  as  to  make  money  of  some 
sort  an  almost  indispensable  instrument  of  society, 
and  to  make  the  invention  of  it  a  comparatively 
easy  task  to  the  human  mind,  still,  we  can  go  back 
in  history  to  a  time  when  there  seems  to  have 
been  no  money,  and  we  can  trace  in  tolerably  clear 
outline  the  gradual  introduction  of  various  forms 
of  money,  until  Pheidon,  King  of  Argos,  first 
coined  silver  money  in  Greece  in  the  first  half  of 
the  eighth  century  before  Christ.  The  Homeric 
poems,  probably  about  a  century  older  than  the 
time  of  Pheidon,  make  no  mention  of  money, 
though  gold  is  several  times  alluded  to  as  an  arti- 
cle of  value,  and  most  of  the  words  expressive 
of  value  refer  to  cattle  or  horses  or  products 
of  agriculture,  various  things  being  mentioned  in 
these  poems  as  worth  so  many  oxen.  It  is  plain 
also  from  the  Latin  word  for  money,  pecunia, 
which  is  derived  from  pecus,  a  sheep,  that  cattle 
were  the  earliest  form  of  money  among  the  Ro- 
mans, as  they  still  are  money  among  some  of  the 
tribes  of  Africa. 

The  word  money  is  derived  from  an  epithet  of 
uncertain  meaning  attached  to  the  name  of  the 
Goddass  Juno.  On  the  Capitoline  Hill  in  Rome 
was  a  temple  dedicated  to  Juno  Moneta,  and  the 
Roman  mint  was  a  building  annexed  to  this  tem- 
ple, and  the  epithet  of  the  goddess  passed  over 
first  to  the  mint  and  then  to  that  which  was 


MONEY.  211 

coined  there.  The  Romans  first  coined  silver  in 
the  year  269  B.C.,  but  they  had  coined  money  of 
bronze  (copper  and  tin)  for  some  centuries  previ- 
ously, and  Pliny  states  that  this  bronze  money 
was  stamped  at  first  with  the  image  of  cattle 
(pecws),  whence  its  name  (pecwnia).  This  is  au 
interesting  statement,  because  it  implies  that  the 
first  pieces  of  coined  money  were  regarded  as  the 
equivalents  in  value  of  the  cattle  whose  image 
they  bore.  It  implies  that  cattle  were  an  early,  if 
not  the  very  earliest  standard  of  value ;  and  that 
when  the  convenience  of  the  metals  as  such  a 
standard  first  suggested  itself,  these  were  coined 
or  cut  into  such  size  as  made  the  pieces  represen 
tative  of  the  value  of  the  animal  whose  outline 
was  stamped  on  them.  Gradually  was  lost  in  the 
luinds  of  men  this  connection  between  the  two, 
and  the  bits  of  metal  came  to  stand  independently 
in  their  own  right  as  valuable  things. 

The  earliest  recorded  mention  of  the  precious 
metals,  in  Gen.  xiii.  2,  confirms  the  precedence  of 
cattle  as  a  standard  of  value,  and,  in  the  order 
of  the  words,  perhaps  foreshadows  the  connection 
just  alluded  to,  and  certainly  implies,  what  is 
proved  by  other  evidence,  that  silver  came  earlier 
than  gold  to  be  a  standard  of  value ;  — "  And 
Abram  was  very  rich  in  cattle,  and  in  silver,  and  in 
gold"  The  earliest  recorded  mention  of  a  pur- 
chase and  sale,  found  in  Gen.  xxiii.,  and  belonging 
to  a  time  about  2000  years  before  Christ,  throws 
much  clear  light  upon  the  conditions  of  trude  in 


212  POLITICAL  ECONOMY. 

that  early  time,  and  gives  us  a  glimpse  of  the  kind 
of  money  then  in  use.  The  wife  of  Abraham 
being  dead,  he  bought  from  •  Ephron  a  field  in 
Machpelah  as  a  burying-place  for  her,  and  he 
"  weighed  to  Ephron  the  silver  he  had  named  in 
the  audience  of  the  sons  of  Heth,  four  hundred 
shekels  of  silver,  current  money  with  the  mer- 
chant." The  pieces  of  silver  were  weighed,  not 
counted,  just  as  the  Bank  of  England  still  weighs, 
not  counts,  coins  received.  Yet  the  money  was 
"  current,"  that  is,  cut  for  purposes  of  circulation 
t'o  certain  ostensible  weights,  as  the  shekel,  (origi- 
nally a  weight),  yet  requiring  a  balance  to  make 
the  exact  value  sure.  The  monuments  of  Egypt 
and  of  Assyria  give  us  pictures  of  such  a  weighing, 
used  in  those  countries  from  a  very  remote  time. 
The  Scripture  passage  shows  that  there  were  in 
Abraham's  time  "  merchants "  as  a  class.  It 
shows  also,  that,  in  the  absence  of  written  docu- 
ments, living  witnesses  authenticated  the  facts  of 
trade.  It  was  "  in  the  audience  of  the  sons  of 
Heth,  before  all  that  went  in  at  the  gate  of  his 
city,  that  the  field  and  the  cave  were  made  sure 
unto  Abraham  for  a  possession." 

Now,  in  the  light  of  what  has  already  been  said, 
it  is  easy  to  see  what  is  tin  essential  nature  of 
money.  It  is  a  go-between.  It  is  a  standard  of 
comparison  in  values.  All  values  of  every  kind 
rest  back  for  their  basis  on  a  COMPARISON;  and 
some  things  are  compared  directly  with  each  other, 
and  exchanged  directly  against  each  other  without 


MONET.  213 

any  reference  to  any  third  thing  as  a  standard  of 
comparison ;  while  most  things  are  first  compared 
with  the  standard,  even  when  they  are  not  actually 
exchanged  against  the  standard,  and  their  relations 
in  value  to  other  things  are  ascertained  by  means 
of  the  standard.  Money  itself  is  a  valuable  thing, 
else  it  could  not  serve  as  a  standard  in  values. 
Something  that  has  length  (an  inch)  must  be  used 
as  a  standard  of  length,  something  that  has  capa- 
city (a  pint)  must  be  used  as  a  standard  of  capa- 
city, and  something  that  has  value  (a  dollar)  must 
be  used  as  a  standard  of  value.  The  value  of 
money  comes  and  goes  under  precisely  the  same 
conditions  as  the  value  of  any  thing  else,  it  stands 
in  its  own  right  just  as  any  other  valuable  thing 
does,  and  the  only  peculiarity  of  it  is,  that  its 
value  is  made  a  means,  —  a  standard,  —  of 
comparing  together  the  values  of  all  other 
things. 

Let  me  simply  illustrate  these  points;  —  If  I 
have  a  penknife  for  which  I  have  no  immediate 
use,  and  my  friend  has  a  patent  inkstand  for 
which  he  has  no  immediate  use,  and  each  of  us 
happens  to  desire  this  possession  of  the  other,  we 
may  exchange  penknife  for  inkstand  without  ever 
thinking  of  any  third  thing,  as  a  dollar,  with 
which  to  sompare  the  two  things.  This  is  a  case 
of  value.  The  penknife  is  worth  the  inkstand, 
and  the  inkstand  is  worth  the  penknife.  This  is 
a  case  of  what  is  called  Barter,  or  direct  ex- 
change. Money  plays  no  part  whatever  in  such 


214  POLITICAL  ECONOMY. 

an  exchange.  But  such  exchanges  are  relatively 
uncommon.  Almost  all  things  are  sold  either 
actually  for  money,  which  thus  becomes  an  in- 
termediate and  equivalent  merchandise,  or  at  a 
value  estimated  in  money,  which  thus  furnishes 
the  aid  of  its  denominations  for  a  transaction 
which  may  be  settled  up  otherwise  than  by  the 
VLje  of  money  itself. 

Thus ;  —  The  stationer,  thinking  it  likely  that 
I,  or  somebody  else,  will  want  an  inkstand,  and 
my  friend,  or  somebody  else,  will  want  a  penknife, 
buys  these  commodities  in  the  market  in  order  to 
sell  them  again  at  a  profit;  I  pay  him  a  silver 
dollar  for  the  stand,  and  my  friend  pays  him  a 
silver  dollar  for  the  knife  ;  our  wants  are  both 
supplied,  as  before,  but  this  time  through  the 
agency  of  money,  which  acts  in  this  case  as  a 
convenient  commoditj^,  an  equivalent  merchan- 
dise, a  thing  with  which  the  other  thing  is  com- 
pared and  is  pronounced  equivalent;  but  if  my 
friend  and  I  have  reciprocal  dealings  with,  the 
stationer,  he  furnishing  us  things  from  time  to 
time,  and  we  furnishing  him  things  other  than 
money  from  time  to  time,  there  is  no  need  that 
money  pass  from  us  to  him  in  pay  for  the  ink- 
stand and  penknife,  at  least  at  present,  but  there 
is  need  that  we  know  what  value  on  account  of 
these  two  things  will  be  reckoned  against  us  ill 
the  final  settlement,  and  this  can  only  be  through 
the  use,  not  of  money  itself,  but  of  the  denomina- 
tions of  money.  He  charges  us  each  one  dollar 


MONEY.  215 

and  we  are  bound  to  furnish  him  at  some  time 
either  with  an  actual  dollar  in  return  or  with  a 
dollar's  worth  of  something. 

This  example  illustrates  the  important  fact,  that 
money  as  a  denomination  is  used  in  thousands  of 
cases,  as  in  estimates,  bargainings,  cases  of  mutual 
indebtedness  in  the  clearing-house  and  elsewhere, 
in  which  money  as  a  commodity  is  not  used  at  all, 
cir  if  at  all,  only  to  pay  off  small  balances.  Whether 
the  thing-dollar  or  only  the  denomination-dollar 
be  used,  the  nature  of  money  as  involving  a  com- 
parison, as  involving  a  standard,  is  equally  illus- 
trated. Strictly  speaking,  money  as  such  has  but 
one  function,  namely,  to  serve  as  a  standard  of 
comparison  throughout  the  whole  realm  of  values,  to 
serve  as  a  means  of  reducing  to  one  common  measure 
all  values  whatsoever.  Much  confusion  has  arisen, 
and  still  exists,  even  among  eminent  writers,  from 
not  distinguishing  clearty  between  what  belongs 
to  money  as  a  certain  valuable  thing  having  quali- 
ties in  common  with  all  other  valuable  things,  and 
what  belongs  to  it  as  money.  All  money  has  value 
of  course,  else  it  could  have  no  function  in  the  realm 
of  values,  but  besides  value,  which  it  has  in  com- 
mon with  ten  thousand  things,  it  has  something 
additional  and  peculiar,  something  imparted  to  it 
by  the  opinion,  custom,  or  law,  of  the  community, 
and  that  something  is  just  this,  that  it  shall  serve 
as  a  means  of  commensurati.ng  all  other  values 
with  each  other.  It  is  commonly  said,  that  money 
is  both  a  medium  of  excJianye  and  a  measure  of 


216  POLITICAL  ECONOMY. 

value ;  and  Professor  Jevons l  has  even  tried  to 
make  out  that  there  are  two  functions  more, 
namely,  a  standard  of  value,  and  a  store  of  value. 
I  myself  formerly  endeavored  to  distinguish  care- 
fully the  medium  -  quality  from  the  measure- 
quality,  as  if  these  two  were  co-ordinate  ;  but  I  am 
now,  after  much  reflection,  inclined  to  maintain 
that  money  as  such  has  but  one  characteristic 
difference  from  other  forms  of  value,  namely,  this 
stawc&zrc?-quality,  to  which  all  other  values  are 
constantly  referred. 

When  money  passes  from  hand  to  hand  as  a 
medium  in  exchanges,  that  is  to  say,  when  men 
sell  services  of  all  kinds  for  actual  money  received, 
what  is  it  that  makes  the  money. so  universally 
acceptable?  Of  course,  the  main  reason  is  its 
value,  that  is  to  say,  it  can  be  used  at  once  or  at 
will  to  purchase  other  things  with.  The  service 
has  just  bought  the  money,  and  now  the  money 
will  buy  any  other  service  offered  for  sale.  But 
other  things  besides  money,  as  wheat,  cloth,  butter, 
have  value  as  constantly  in  time,  though  not  per- 
haps as  steadily  in  amount,  as  money  has ;  but 
these  things,  whatever  they  are,  are  not  so  accept- 
able in  exchanges  as  money  is ;  why  not  ?  Simply 
because  money  through  the  action  of  society  in 
law  or  custom  has  an  additional  attribute,  which 
these  other  forms  of  value  lack,  namely,  the  attri- 
bute of  being  a  standard.  This  additional  attribute 

1  Money  and  the  Mechanism  of  Exchange,  p.  13. 


MONEY.  217 

is  not  what  imparts  its  value  to  money,  since  an  ounce 
of  uncoined  gold  is  worth  within  a  very  small 
fraction  as  much  as  an  ounce  of  gold  money,  but 
it  makes  the  money  a  far  more  convenient  instru- 
ment to  purchase  with,  inasmuch  as  money,  having 
now  the  attribute  of  making  all  other  values  easily 
commensurable  with  itself,  becomes  at  once  some 
tiling  which  everybody  is  willing  to  receive,  be- 
cause everybody  knows  in  general  what  its  power 
will  be  to  purchase  all  other  things.  In  other 
words,  money  becomes  a  medium  of  exchange  just 
because  it  has  become  a  measure  of  values ;  and 
there  are  not  in  reality  two  functions  of  money, 
still  less  four,  but  only  one. 

When  the  United  States  at  one  of  its  mints 
coins  a  piece  of  gold  weighing  25  f  grains  troy,  of 
which  23.22  grains  are  pure  gold,  and  calls  that 
coin  a  "  dollar,"  and  makes  the  "  dollar  "  the  unit 
of  accounts,  and  makes  the  coin  a  legal  tender  for 
debts  to  the  amount  of  a  "  dollar,"  it  transforms 
a  bit  of  bullion  into  a  piece  of  money.  What  has 
really  been  done  ?  The  mint  has  not  imparted  its 
value  to  the  gold  piece,  because  the  bullion  was 
worth  substantially  as  much  as  the  coin  now  is, 
and  the  United  States  does  the  coining  absolutely 
fi  ir  nothing,  but  it  has  imparted  a  most  important 
attribute  to  the  gold  piece,  by  virtue  of  which  its 
value  becomes  a  legal  measure  of  the  value  of 
every  salable  thing  in  the  country,  and  by  virtue 
of  which,  being  such  a  measure,  it  becomes  accept- 
able to  the  extent  of  its  value  in  every  pecuniary 


218  POLITICAL  ECONOMY. 

transaction  in  the  land.  This  view  seems  to  me 
to  simplify  the  subject  of  Money  very  much,  and 
I  am  confident  that  it  will  be  found  to  be  scien- 
tifically correct,  and  we  shall  have  many  meanp  ««t 
testing  its  accuracy  as  we  proceed. 

I  cannot  at  all  see  my  way  clear  to  agree  \\  ith 
Mr.  Macleod,  who  is  able  however  to  fortify  his 
opinion  by  the  great  name  of  Bastiat,  and  who  is 
himself  an  economist  of  the  first  rank,  when  he 
affirms l  that  money  is  a  simple  representative  of 
Debt.  "  The  quantity  of  money  in  any  country 
represents  the  amount  of  Debt  which  there  would 
be  if  there  was  no  money  ;  and  consequently, 
where  there  is  no  debt  there  can  be  no  money." 
The  unfortunate  use  by  some  countries  of  a  paper- 
money,  which  is  indeed  a  form  of  debt,  gives  some 
plausibility  to  the  notion  that  money  is  a  repre- 
sentative of  debt ;  and  perhaps  the  fact,  that 
money  is  frequently  used  to  pay  debts  previously 
contracted,  and  that  debts  are  usually  contracted 
in  the  terms  of  money,  gives  some  additional 
plausibility  to  this  view ;  but  as  Mr.  Maeleod  him- 
self goes  on  to  say,  that  "  no  substance  possesses 
so  many  advantages  as  a  metal  for  money,"  and 
that  "  all  civilized  nations  therefore  have  agreed 
to  adopt  a  metal  as  money,  and  of  metals,  gold, 
silver  and  copper  have  been  chiefly  used,"  I  do 
not  see  how  he  can  consistently  hold  that  a  gold 
dollar,  or  a  gold  sovereign,  whose  value  is  in  no 
sense  due  to  the  process  of  coining,  whose  value  is 

1  Elements  of  Banking.    London,  1876. 


MONEY.  219 

as  substantive  and  independent  as  any  value  in 
the  world  can  be,  becomes  through  coinage  and 
circulation  a  representative  of  debt.  Instead  of 
saying,  as  he  does,  "  where  there  is  no  debt  there 
can  be  no  money,"  I  should  confidently  say,  where 
all  transactions  are  settled  in  solid  money  there 
can  be  no  debt. 

Gold  and  silver  money  are  an  independent  and 
equivalent  merchandise,  made  indeed  by  coinage  a 
measure  of  the  value  of  all  other  merchandise,  but 
not  losing  through  coinage  their  own  quality  as 
merchandise,  only  taking  on  by  means  of  coinage 
an  additional  quality  fitting  them  to  be  a  standard 
of  value  ;  paper-money  is  strictly  nothing  but  a 
promise  to  pay  the  merchandise  (gold  or  silver) 
which  the  proper  authority  has  coined  as  the 
standard  money  of  the  land,  and  which  alone 
furnishes  the  denominations  in  which  even  the 
paper-money  and  all  other  credit-obligations  are 
reckoned;  so  that  money  is  always  either  an 
equivalent  merchandise,  or  a  promise  to  pay  it. 
Paper-money  certainly  represents  a  debt,  but  gold 
and  silver  money  represent  nothing  but  them- 
selves, only  the  national  stamp  on  them  makes 
tliem  and  their  denominations  a  convenient  n  ens- 
ure of  all  other  values. 

What  is  a  dollar  ?  Practically  since  the  year  1834 
a  dollar  has  been  a  metal  compound,  consisting  of 
nine  parts  pure  gold  and  one  part  a  hardening  alloy, 
and  weighing  25|  grains  troy.  There  is  no  mys- 
tery about  it.  That  is  a  dollar.  It  is  a  substantive 


220  POLITICAL  ECONOMY. 

thing,  visible,  tangible,  ponderable,  and  valuable. 
But  when  the  law  makes  just  that  thing  a  dollar^ 
it  establishes  the  value  of  that  as  the  unit  of  all 
other  values,  and  of  course  at  the  same  time  con- 
stitutes the  denomination-dollar  as  a  kind  of  lan- 
guage through  which  values  may  express  them- 
selves in  estimates,  bargainings,  and  so  on.  It  is 
competent  for  Congress  to  say  that  the  dollar  here- 
after shall  consist  of  20  grains  of  gold  nine-tenths 
fine ;  but'  the  effect  of  that  would  be  to  reduce  the 
unit  of  value  23  per  cent,  or  in  other  words,  to 
raise  the  value  of  all  things  measured  by  the  new 
dollar  23  per  cent. 

Congress  indeed  tried  from  the  beginning,  and 
again  in  1878,  to  make  another  kind  of  dollar  out 
of  silver ;  but  these  attempts  ceased  in  1853,  and 
it  is  yet  too  soon  to  judge  how  the  renewed 
attempt  of  1878  will  issue ;  but  it  is  strictly  true 
to  say,  that  between  1834  and  1880,  with  excep- 
tions too  trifling  to  disturb  the  point  now  in 
hand,  the  standard-dollax  of  the  United  States 
was  the  gold  dollar  just  described.  To  try  to 
make  a  double  standard  at  all,  is  doubtless 
very  unwise  ;  and  it  is  exceedingly  unwise 
for  any  government,  unless  in  view  of  imperative 
public  reasons,  to  change  the  standard  to  which 
the  people  have  been  accustomed,  for  the  same 
reason  that  it  is  unwise,  except  as  before,  to 
change  the  standard  of  weights  and  measures. 
After  each  change  in  one  or  the  other,  every  tiling 
has  to  be  adjusted  to  a  new  unit 


MONET.  221 

It  is  indeed  very  desirable  that  there  should  be 
an  international  and  universal  system  of  coinage, 
that  is  to  say,  that  the  money  of  one  country, 
having  been  so  minted  as  to  bear  simple  ratios  to 
the  coins  of  other  commercial  countries,  may  cir- 
culate freely  throughout  the  world.  The  French 
franc-system  has  already  gained  great  prevalence 
in  Europe  and  parts  of  Asia,  and  if  our  gold 
dollar  were  lowered  3.5  per  cent,  and  the  English 
sovereign  also  lowered  0.83  per  cent,  very  simple 
relations  would  obtain  between  francs,  dollars  and 
sovereigns  ;  —  25  francs  would  just  equal  5  dollars, 
and  each  would  just  equal  1  sovereign;  or,  1  dollar 
would  equal  5  francs,  and  each  equal  4  shillings. 
The  unification  of  French,  English,  and  American 
money  in  this  or  any  other  way  would  doubtless 
be  followed  by  the  action  of  all  other  commercial 
countries  bringing  their  money  into  harmony  with 
these  unified  coins;  and  to  bring  about  such  a 
grand  result  as  this  would  justify  any  country  in 
changing  its  unit  of  value.  This  is  done  simply 
by  changing  the  weight  of  pure  gold  or  silver  in 
the  unit  coin.  As  the  value  of  coined  money 
depends  on  the  weight  of  pure  metal  in  it,  the 
relations  in  value  of  different  coins  depend  on 
their  respective  weights ;  for  example,  there  are 
1 13.001  grains  troy  of  pure  gold  in  an  English  sov- 
ereign, and  23.22  grains  in  an  American  dollar, 
accordingly,  one  sovereign  is  worth  $4.86G5,  and 
by  recent  law  of  Congress  the  two  are  made 
equivalent.  Thus  we  see  what  a  dollar  is,  what  a 


222  POLITICAL  ECONOMY. 

sovereign  is,  what  is  any  other  unit  of  value : 
it  is  a  certain  weight  of  a  precious  metal  authen* 
ticated  by  the  government  through  the  process 
of  coinage  as  of  such  and  such  weight  and  fine- 
ness. 

What  is  a  dollar-bill?  It  is  nothing  in  the 
world  but  a  promise  to  pay  the  dollar  just  de- 
BCiibed.  It  may  be  issued  by  a  bank,  or  it  may 
be  issued  by  a  government,  it  is  a  promise  still  — 
nothing  but  a  promise.  Here  comes  in  Mr.  Mao 
leod's  idea  that  money  represents  a  debt.  Paper 
money  does  represent  a  debt.  A  dollar-bill  is  a 
sign  that  the  issuer  owes  the  bearer  one  dollar. 
If  the  issuer  redeem  his  bill  with  a  gold  dollar,  as 
he  is  bound  IP  terms  and  in  honor  to  do,  the  debt 
is  paid,  the  transaction  13  completed ;  while  the 
holder  of  the  gold  dollar  holds  no  debt  against 
anybody,  nobody  is  obliged  tu  take  his  dollar, 
the  government  that  coined  it  has  nothing  to  do 
with  it  any  more,  it  is  a  piece  of  ultimate  prop- 
erty, it  is  the  unit  of  value,  not  a  sign  but  the 
thing  signified,  not  a  debt  but  a  quittance.  A 
dollar-bill  is  a  piece  of  credit-paper  that  goes  by 
faith:  a  coin-dollar  is  a  piece  of  metal,  authen- 
ticated indeed  as  to  weight  and  fineness  by  the 
stamp  of  government,  and  thus  made  a  convenient 
standard  of  value,  but  otherwise  requiring  no  faith 
in  anybody,  —  it  goes  by  sight.  Paper-money  is 
promise,  coin-money  is  payment.  This  distinction 
is  of  great  importance,  and,  if  clearly  seen  and 
firmly  held  to,  will  guide  my  readers  safely 


MONEY.  223 

through  all  the  mazes  of  what  is  called  the  "  cur 
rency  discussion." 

Bank-bills  will  be  thoroughly  discussed  in  the 
coming  chapter  on  Credit,  and  I  will  here  only 
call  attention  to  the  incongruity  of  ever  making  a 
mere  promise  to  pay  a  legal  tender  for  debts. 
Parliament  indeed  makes  the  bills  of  the  Bank  of 
England  legal  tender  for  debts  within  the  realm, 
but  only  so  long  as  the  bank  redeems  them  in  f.oin  on 
demand,  which  condition  removes  of  course  the 
chief  objection  to  such  legislation ;  and  Congress 
in  1862  made  the  ,  Treasury  notes,  commonly 
called  greenbacks,  legal  tender  for  all  debts 
within  the  United  States  except  interest  on  the 
public  debt  and  the  taxes  levied  by  the  tariff. 
These  notes  are  still  legal  tender,  though  their 
value  has  varied  in  this  interval  as  compared  with 
gold  from  35  cents  to  just  one  hundred  cents  to 
the  dollar.  A  promise  should  always  rest  on  the 
free  faith  of  the  receiver  in  the  good  faith  of  the 
issuer ;  and,  therefore,  to  compel  people  to  accept 
a  promise  is  a  moral  and  monstrous  incongruity. 
To  continue  to  give  in  this  manner  a  forced  circu- 
lation to  mere  promises  to  pay  whidi  were  so  long 
unfulfilled  and  depreciated  has  at  once  weakened 
the  discredit,  disarranged  the  industries,  and  low- 
ered the  morals  of  the  people  of  the  United  States. 

Common  language  recognizes  alike  as  money 
these  national  coins  of  gold  and  silver  and  these 
paper  promises  to  pay  them, — both  those  issued 
by  banks  and  those  issued  by  government  for  the 


224  POLITICAL  ECONOMY. 

purpose  of  furnishing  a  circulating  medium ;  and 
science,  while  insisting  on  the  fundamental  dis- 
tinction already  made,  has  no  motive  to  restrict 
the  current  meaning  of  the  word  money.  Money, 
then,  may  be  denned  to  be  that  value  which  law, 
or  usage  equivalent  to  law,  requires  creditors  to  ac- 
cept in  payment  of  debts.  The  question  What  is 
money  ?  and  the  question  What  is  the  best  money  ? 
are  quite  distinct  questions,  and  while  we  shall 
try  to  answer  both  questions  fully  in  their  place, 
we  will  for  the  present,  for  the  sake  of  simplicity 
and  the  clearer  understanding  of  some  points,  dis- 
miss all  thoughts  of  paper-money,  and  consider 
that  money  consists  only  of  gold  and  silver  coins. 
In  doing  this,  we  will  not  forget  that  a  great 
many  other  things  besides  gold  and  silver  have 
been  used  as  money  at  one  time  or  another.  We 
have  already  seen  that  the  sole  characteristic  of 
money  as  such  is  that  it  serves  as  a  standard  value 
with  which  to  compare  all  other  values,  and  as 
such  a  standard  —  value  being  what  it  IK  —  it  pos- 
sesses of  course  a  kind  of  generalized  purchasing- 
power,  which  fits  it  to  pass  from  hand  to  hand  as 
a  medium  in  ordinary  exchanges.  A  good  many 
different  things  have  served  these  purposes  in  <lii> 
feient  ages  and  countries,  and  we  will  notice  a 
few  of  them,  more  as  a  matter  of  curiosity  than  as 
necessary  in  order  to  understand  the  nature  and 
functions  of  money  as  such. 

Before  Pheidon  coined  silver  in  Greece,  coppei 
skewers  were  used  in  that  country  as  money,  of 


MONEY.  225 

which  six  were  equal  to  a  drachm,  which  was  both 
a  coin  and  a  weight,  the  coin  worth  about  17  cents 
of  our  money  —  nearly  the  same  as  a  Roman  dena- 
rius—  and  the  weight  about  66  grains  avoirdu- 
pois ;  —  the  word  drachm  being  derived  from 
dpdypa,  a  handful,  and  the  sixth  part  of  it,  called 
an  obol  from  the  Greek  word  meaning  a  spit,  was 
also  both  a  coin  and  a  weight,  which  makes  it 
evident  that  these  skewers  were  used  in  connec- 
tion with  roasting  meat,  and  that  one  of  them  was 
both  a  unit  of  value  and  of  weight.  Cattle  have 
been  employed  as  money  among  pastoral  people  in 
almost  all  periods  of  the  world,  and  are  still  em- 
ployed for  this  purpose  in  Airica.  Cowry  shells 
are  used  in  the  East  Indies  and  also  in  Africa  in 
place  of  small  coins,  and  have  sometimes  been 
imported  into  England  from  India  to  be  exported 
in  trade  with  the  coast  of  Africa :  these  count 
in  Bengal  at  about  3200  to  a  rupee  (46  cents). 

The  New  England  Indians  used  as  money  belts 
of  beads,  the  white  ones  made  out  of  the  ends  of 
periwinkle  shells  and  the  black  ones  from  the 
black  parts  of  clam  shells,  of  which  360  made  a 
belt  or  string  of  wampum,  as  they  called  it,  the 
black  beads  being  counted  worth  twice  as  much 
as  the  white  ones ;  and  the  English  colonists 
accepted  the  wampum  in  their  exchanges  with  the 
Indians,  regarding  a  string  of  white  as  equivalent 
to  5  shillings  and  a  string  of  black  to  10  shillings, 
and  afterwards  made  it  a  legal  tender  for  small 
sums  among  themselves,  and  even  counterfeited  it. 


226  POLITICAL  ECONOMY. 

The  Carthaginians  had  a  kind  of  leather  money, 
which  may  have  originally  enclosed  bits  of  the 
precious  metals,  but  which  cam'e  to  circulate  as 
bits  of  leather  only  ;  and  several  times  in  Europe, 
in  the  middle  ages  and  even  since,  kings  have  re- 
sorted to  the  issue  of  leather  money,  of  which 
there  are  specimens  in  the  British  Museum. 

According  to  the  travellers  Polo,  China  had  in 
the  13th  century  a  money  made  from  the  middle 
bark  of  the  mulberry-tree,  cut  into  round  pieces 
and  stamped  with  the  image  of  the  sovereign, 
which  money  it  was  death  to  counterfeit  or  to  re- 
fuse to  take  in  any  part  of  the  empire.  Cakes  of 
tea  have  passed  as  money  in  India,  and  elsewhere ; 
and  it  is  said,  that  at  the  great  annual  fair  at  Nov- 
gorod in  Russia,  the  price  of  tea  has  first  to  be 
determined  before  the  prices  of  other  commodities 
can  be  settled  upon,  since  that  is  a  kind  of  stand- 
ard of  values  in  that  great  mart.  Bullets  once 
passed  in  Massachusetts  at  a  farthing  apiece,  and 
were  legal  tender  for  debts  of  less  than  one  shil- 
ling. Salt  has  been  current  money  in  Abyssinia ; 
codfish  in  Iceland  and  Newfoundland ;  tobacco  in 
Virginia  ;  beaver-skins  in  New  Netherlands ;  pieces 
of  silk  in  China ;  nails  in  Scotland,  according  to 
Adam  Smith,  which  is  a  forcible  reminder  of  the 
old  Greek  skewers ;  iron  was  money  in  Sparta ; 
leaden  money  was  known  to  the  ancients,  and  is 
still  current  in  the  Burmaii  empire ;  the  earliest 
coin;}  proper  were  undoubtedly  of  bronze,  a  mix- 
ture of  copper  and  tin,  and  Sicilian,  Roman,  and 


MONEY.  227 

old  British  coins  of  tin  alone  are  known  to  have 
been  struck  ;  and  Herodotus  makes  the  statement, 
that  the  Lydians  of  Asia  Minor  were  the  first  to 
make  a  coinage  of  a  mixture  of  gold  and  silver, 
called  electrum,  very  ancient  specimens  of  which 
are  still  existing.1 

Indeed,  such  is  the  necessity  of  some  standard 
of  value  in  order  that  exchanges  may  reach  any 
considerable  development,  that  we  shall  not  be 
surprised  to  learn  that  many  other  things  besides 
these  mentioned  have  served  in  primitive  states  of 
society  as  such  a  standard.  Experience,  however, 
as  civilization  has  advanced,  has  already  driven  the 
nations  for  the  most  part  to  drop  these  tentative 
and  factitious  standards  in  favor  of  the  precious 
metals  as  the  best  material  for  money.  Gold  and 
silver  coins  are  now  acceptable  in  almost  all  parts 
of  the  known  world;  and  in  many  parts  of  the 
world  nothing  else  is  acceptable  as  money;  so 
that,  experience  has  demonstrated  in  their  almost 
universal  adoption  the  superiority  of  these  metals 
over  all  other  forms  of  money;  and  we  shall  be 
able  to  give,  further  on,  some  excellent  reasons 
why  gold  and  silver  furnish  the  best  money. 

Assuming  now,  for  the  present,  that  coins  of 
these  metals  are  the  only  money,  this  is  the  place 
to  see  exactly,  what  the  uses  of  money  are.  These 
nses  are  two  ;  and  they  both  spring  out  of  the  one 
characteristic  of  money  as  the  chosen  standard 

1  Sue  comments  on  this  passage  in  Macleod's  Economics,  rol 
L367 


223  POLITICAL  ECONOMY. 

tvith  wliich  all  current  values  are  compared.  Gov- 
ernments usually  appoint  the  standard,  that  is, 
determine  by  law  the  weight  arid  fineness  of  that 
coin  whose  denomination  furnishes  the  unit  of 
reckoning;  but  even  if  governments  failed  to  do 
this,  the  people  would  not  fail  to  establish  and 
maintain  a  standard  for  themselves.  Such  a 
standard  being  chosen  in  a  gold  coin  called  a 
dollar,  and  these  dollars  being  minted  freely  for 
the  convenience  of  the  people,  my  readers  will  see 
clearly  how  they  come  to  have  their  first  use  as 
money  by  becoming  a  medium  in  exchanges.  A 
true  medium  always  stands  between  two  other 
things  and  serves  to  relate  them  to  each  other. 
Such  a  medium  is  money. 

Having  been  appointed  as  a  standard  for  values, 
a  person  having  any  thing  to  sell  immediately  com- 
pares his  product  with  the  standard,  determines  in 
his  own  mind  how  many  multiples  or  sub-multiples 
of  the  standard  his  product  will  bring,  that  is  to 
say,  how  many  dollars  or  cents  it  is  in  his  judgment 
worth,  and  offers  his  product  for  sale  to  anybody 
who  will  give  him  his  price.  Price  is  the  value  of 
any  thing  expressed  in  money.  It  L  not  certain  that 
anybody  will  be  found  who  will  give  him  that  exact 
sum ;  because,  as  we  have  seen,  it  takes  two  to 
make  a  bargain ;  but  the  seller  is  willing  to  sell  his 
product  for  as  much  of  the  standard  as  he  can  get, 
because,  being  the  standard,  he  knows  that  other 
people  are  also  comparing  their  products  with  that, 
and  that,  if  he  possesses  the  standard,  they  will  be 


MONEY.  229 

willing  to  sell  their  products  for  his  money  on  pre- 
cisely the  same  principles  as  he  is  now  willing  to 
sell  his  product  for  their  money.  It  is  in  this  way 
that  money  becomes  a  medium  of  exchange.  It  is 
a  standard  first,  and  a  medium  afterwards ;  not  a 
medium  first,  and  a  standard  afterwards.  Or,  as  I 
would  rather  put  it,  it  becomes  a  medium  in  virtue 
of  being  first  a  standard.  The  use  of  the  thing 
waits  on  the  nature  of  the  thing :  the  function  of 
the  thing  follows  the  constitution  of  the  thing. 

Now,  the  effect  on  exchanges  of  having  a  me- 
dium of  exchange  is  simply  marvellous.  It  mul- 
tiplies exchanges  indefinitely  on  every  hand,  be- 
cause no  man  is  obliged  to  wait  before  he  sells  his 
product  till  he  can  find  somebody  who  both  wants 
this  product  and  has  to  sell  the  precise  product  which 
the  first  man  wants,  he  sells  at  once  for  money  to 
any  man  who  but  wants  his  product,  assured  that 
with  this  medium  in  his  pocket  he  can  buy  the 
products  which  he  wants  at  his  own  convenience. 
While  seeming  at  first  sight  to  complicate,  it 
really  simplifies  trade.  It  introduces  a  valuable 
thing,  —  valuable  in  its  own  right,  —  but  which 
everybody  wants,  not  for  its  own  sake,  but  because 
it  will  purchase  from  everybody  what  each  person 
wants  more  than  he  wants  the  money.  It  is 
gladly  received,  but  as  gladly  parted  with.  Every- 
body wants  to  take  it  in,  and  everj-body  wants  to 
pay  it  out.  It  is  good  to  sell  for,  simply  because 
it  is  good  to  buy  with. 

It  affords  no  ultimate  satisfaction  to  human  wants, 


230  POLITICAL  ECONOMY. 

except  to  the  miser,  who,  as  his  name  indicates,  is 
a  miserable  being,  but  it  is  a  medium  through 
which  those  wants  are  really  'satisfied.  It  brings 
buyers  and  sellers  together  commercially,  no  mat- 
ter how  far  separated  they  may  be  locally.  If 
there  be  a  market  for  any  product  anywhere  on 
the  face  of  the  earth,  there  will  be  some  middle- 
man who  will  buy  that  product  for  money,  and, 
transporting  it,  it  may  be  to  the  antipodes,  will 
sell  it  again  either  for  more  money,  or  for  some 
product  that  he  wants  himself  for  an  ultimate 
satisfaction,  or  for  some  product,  which,  being 
transported  back,  will  sell  again  for  more  money 
than  that  originally  given.  In  trade,  there  is,  or 
ought  to  be,  no  dividing  lines,  no  repelling  barriers, 
no  hostile  nationalities,  no  local  prejudices,  no  such 
differing  media  of  exchanges,  as  shall  prevent  a 
legitimate  product  produced  anywhere  from  find- 
ing open  its  appropriate  market  anywhere  else. 
Money  should  be,  and  largely  is,  a  universal 
medium  the  world  over.  Wherever  it  is,  it  draws 
products  towards  itself  in  the  way  of  exchange, 
and  in  turn,  products  draw  it  out  again  in  the  way 
of  further  exchange.  It  is,  in  some  respects,  like 
the  gravitation  of  the  earth  in  relation  to  that  of 
the  moon:  —  it  draws  and  is  drawn  in  turn. 

Especially  does  such  a  medium,  being  divisible 
into  small  parts  without  loss,  draw  out  from  soci- 
ety a  multitude  of  small  services,  which  otherwise 
would  certainly  not  be  rendered  at  all.  Were  it 
not  for  the  attractive  power  of  the  pennies,  for 


MONEY.  231 

example,  newspapers  and  flowers  and  apples  and 
many  other  such  things  would  not  be  sold  as  they 
are  upon  railroad  trains.  A  medium  of  exchange 
in  which  everybody  has  confidence,  minted  in  such 
sums  as  meet  the  public  convenience,  facilitates 
greatly  exchanges  which  would  perhaps  take  place 
any  way,  and  calls  out  multitudes  of  exchanges 
which  otherwise  would  not  take  place  at  all. 
David  Hume  describes  money  as  the  grease  which 
makes  the  wheel  of  exchange  turn  easier ;  which  is 
right  so  far  as  it  goes ;  but  money  does  more  than 
make  a  pre-existing  wheel  revolve  easy ;  it  enlarges 
the  circumference  of  the  wheel  itself,  multiplies 
the  spokes,  broadens  the  rim,  and  strengthens  the 
hub. 

It  must  be  borne  in  mind,  however,  great  as  is 
the  power  and  the  benefit  of  money  as  a  medium, 
that  it  is  still  only  a  medium,  —  a  means  to  an  end, 
—  and  that  what  may  be  called  the  real  exchanges 
of  society  are  in  services  which  minister  to  an  ulti- 
mate satisfaction.  What  people  really  and  ulti- 
mately want  is  not  money,  but  food,  clothing, 
homes,  farms,  factories,  utensils,  furniture,  books, 
education  for  their  children,  various  means  of  dis- 
play, and  innumerable  other  means  of  personal 
gratification.  The  possession  of  these  is  mediated 
by  monej7,  but  the  aggregate  value  of  these  in  any 
co-mtry  by  far  surpasses  the  aggregate  value  of 
all  the  money  there. 

According  to  the  Census  of  1870,  the  real  and 
personal  property  in  the  United  States  amounted 


232  POLITICAL  ECONOMY. 

to  $30,000,000,000  in  that  year,  while  the  aggre- 
gate of  money  in  that  year  was  certainly  less  than 
$800,000,000.  This  would  indicate  a  ratio  of 
property  to  money  of  -10  to  1.  Unfortunately, 
much  of  that  money  was  paper-money  depreci- 
ated; unfortunately,  also,  the  inflation  of  prices 
that  always  accompanies  a  depreciated  money 
made  the  aggregate  of  national  values  in  that 
year  larger  than  it  would  otherwise  have  been 
given.  We  must  remember  that  money  is  a  me- 
dium, and,  though  vastly  important  as  such,  is 
little  in  amount  relatively  to  the  value  of  that 
which  it  helps  to  circulate.  The  right  quantity 
of  money  in  any  country  is  a  matter  that  will 
take  care  of  itself  without  any  need  of  anxiety  on 
the  part  of  anybody.  There  is  a  natural  demand 
for  money  for  these  purposes  of  exchange,  and 
gold  and  silver  enough  to  answer  these  purposes 
are  perfectly  sure  to  come  into  and  stay  in  any 
country  without  any  decree  or  legislation.  The 
supply  is  sure  to  wait  on  the  demand.  Let  the 
mint  of  the  country  coin  for  all  parties  bringing 
bullion,  and  there  will  be  just  money  enough  and 
no  more.  If  perchance  too  much  be  coined,  the 
excess  will  flow  off  to  other  countries  in  trade, 
and  if  perchance  too  little,  bullion  will  be  sure  to 
be  knocking  before  long  at  the  doors  of  the  mint. 
This  is  one  of  the  things  that  take  cars  of  them- 
selves perfectly.  No  government  needs  to  lay 
awake  of  nights  o\  er  the  matter  of  sufficiency  of 
money,  provided  only  they  allow  no  other  than 


MONEY.  233 

gold    and    silver    money    within    their    jurisdic- 
tion. 

We  have  now  seen  that  money  is  a  tool  of 
exchange,  and  as  this  particular  tool  is  made  of 
gold  and  silver,  of  course  it  will  cost  something 
to  maintain  and  repair  it.  Gold  and  silver  coins 
will  wear  out.  But  they  do  not  wear  out  so  fast 
as  many  people  seem  to  think.  Careful  calcu- 
lations in  the  Report  of  the  Director  of  the  Mint 
in  1862  indicate  that  such  coins  in  active  circu- 
lation lose  on  the  average  ^iVff"  °^  their  weight 
each  year.  Considering  how  perfectly  they  do 
their  work,  considering  how  beautiful  they  are 
as  works  of  art,  considering  that  it  would  take 
2400  years  to  wear  them  all  out,  and  considering 
the  difficulty  not  to  say  impossibility  of  finding 
any  adequate  substitutes,  we  may  reasonably  con- 
clude that  gold  and  silver  coins  are  a  cheap  and 
durable  instrument.  Their  first  cost  is  consid- 
erable :  so  is  the  cost  of  any  first-class  machine. 
It  costs  something  additional  to  keep  them  up 
to  full  weight  and  beauty  :  so  also  it  does  to 
keep  in  good  repair  and  efficiency  the  machinery 
in  a  mill.  No  argument  is  good  for  the  displace- 
ment of  gold  and  silver  coins  by  what  is  deemed  a 
less  costly  money,  which  will  not  equally  apply 
for  the  displacement  of  the  good  machinery  of  a 
factory  by  cheaper  and  less  efficient  substitutes. 

This  first  function  of  money,  namely,  to  serve  as 
a  medium  in  exchanges  of  all  kinds,  is  a  delicate 
and  most  responsible  function,  demanding  for  th« 


234  POLITICAL  ECONOMY. 

instrument  that  performs  it  the  complete  confi- 
dence of  everybody  year  in  and  year  out ;  and  the 
function  cannot  be  satisfactorily  performed  except 
by  a  tool  that  costs  something.  To  mediate  values 
well  requires  something  highly  and  steadily  valua~ 
lie.  With  reference  to  a  given  volume  of  business, 
it  is  cheaper  for  a  country  to  keep  a  smaller  ttock 
of  coins  in  a  more  rapid  circulation  than  a  larger 
stock  moving  more  sluggishly,  for  the  same  reason 
that  it  is  cheaper  with  reference  to  a  given  amount 
of  work  to  keep  any  tool  employed  constantly 
than  occasionally,  namely,  the  interest  on  the 
outlay  is  thus  soonest  secured. 

For  example,  $1,000,000  changing  hands  five 
times  a  day  will  do  the  work  in  exchange  of 
$5,000,000  changing  hands  but  once  a  day.  But 
the  interest  on  the  two  sums  for  the  day  is  in  the 
ratio  of  5  to  1.  It  is  true  that  the  rapidly  circu- 
lated coins  are  abraded  faster  than  the  sluggish 
ones,  but  this  will  not  begin  to  balance  the  loss  of 
interest.  The  quantity  of  coin  needed  to  make 
the  exchanges  will  adjust  itself  to  the  habits  of 
the  people  and  to  the  conditions  of  business  in 
any  country ;  and  it  is  well  for  individuals  and 
corporations  to  remember,  that,  the  more  rapidly 
they  circulate  the  coin  that  comes  into  their  pos- 
session consistently  with  the  uses  to  which  they 
have  determined  to  put  it,  the  better  for  every- 
body with  whom  they  deal,  and  the  cheaper  for 
the  country  furnishing  the  coin.  He  doubly  pays 
who  quickly  pays.  Quick  payments  all  around 


MONEY.  235 

imply  relatively  small  stocks  of  coin  and  healthful 
conditions  of  business. 

The  second  function  of  money,  —  both  func- 
tions resulting  alike  from  the  nature  of  money  as 
an  appointed  standard  of  value,  —  is  to  serve  as  a 
measure  of  value  in  cases  in  which  no  money  as  a 
medium  is  required  to  pass.  Considering  that 
value  is  always  determined  by  an  exchange,  the 
standard  of  value  must  necessarily  be  a  medium, 
that  is,  something  actually  exchangeable  against 
other  things ;  and  it  is  equally  necessary  that  the 
name  or  denomination  of  this  standard  should 
come  to  be  used  in  the  minds  of  men  as  a  general 
measure  of  values  in  future  contracts,  credits  of 
all  kinds,  calculations  and  bargainings. 

To  illustrate  by  matters  mainly  parallel ;  — 
Many  years  ago,  Edward  Trough  ton1  of  London, 
a  mathematical-instrument  maker,  took  great  pains 
to  obtain  and  authenticate  a  standard  inch,  which 
has  ever  since  been  called  "  Troughton's  inch ; " 
and  such  was  the  great  reputation  of  the  man  and 
his  work,  that  that  inch  was  greatly  sought  after 
by  English  speaking  peoples  as  a  means  to  correct 
and  verify  their  measures  of  length.  It  became  a 
standard  inch.  As  such,  it  must  offer  itself  as  a 
tangible  and  measurable  thing  to  all  who  wished 
to  ascertain  its  exact  length  and  use  that  length 
thereafter  as  a  standard.  This  having  been  fre- 

1  Graduates  of  Williams  College  who  had  the  privilege  of 
attending  the  lectures  of  the  late  Professor  Jlopkius  on 
will  recognize  my  indebtedness  to  him  for  this  illustration. 


236  POLITICAL  ECONOMY. 

quently  done,  and  a  copy  of  that  inch  being  gen- 
erally diffused  for  purposes  of  comparison,  the 
denomination-inch  derived  from  that  came  to  be 
usable  in  the  minds  of  men  as  an  ideal  measure  of 
length.  It  is  still  so  used.  Men  talk  about 
inches,  and  calculate  by  inches,  in  thousands  of 
cases  in  which  no  actual  inch  is  used  as  a  measure. 
Still,  in  every  case  of  doubt,  dispute,  or  difficulty, 
recourse  is  had  to  the  actual  inch.  The  ideal  inch 
is  kept  steady  in  the  minds  of  men  by  frequent 
reference  to  the  outward  and  actual  standard. 

Just  so  with  dollars  and  cents.  As  a  standard 
of  value,  the  dollar  must  be  an  actual  medium 
passing  from  hand  to  hand  in  exchanges,  but  in 
so  passing  its  denomination  impresses  itself  on 
the  minds  of  men  as  an  ideal  measure  of  values, 
which  they  can  use,  and  which  they  constantly  do 
use,  without  handling  the  dollar  itself.  But,  as 
before,  there  needs  to  be  a  check  on  the  concep- 
tion and  use  of  ideal  dollars,  by  a  constant  recur- 
rence to  palpable,  actual  thing-dollars.  The 
denomination  only  comes  into  existence  in  connec- 
tion with  the  use  of  the  thing,  cannot  possibly 
exist  independently  of  it,  and  needs  constantly  to 
be  reduced  to  it  (as  it  were  by  actual  contact)  in 
order  to  be  useful  as  a  measure. 

The  French  writer  Montesquieu  asserted  that 
there  was  in  use  among  the  inhabitants  of  the  coast 
of  Africa  in  the  last  century  what  he  called  "  an 
ideal  money,"  "  a  sign  of  value  without  money," 
the  unit  of  which  was  called  the  macoute,  which 


MONEY.  x      237 

was  subdivided  also  into  ideal  tenths  called  pieces. 
Tliis  statement  was  startling,  as  implying  a  denomi- 
nation without  the  thing  denominated,  as  implying 
a  standard  of  value  which  had  no  basis  in  a  valua- 
ble thing.  It  was  discovered,  however,  afterwards, 
that  this  money  of  account  had  its  origin,  just  as 
we  should  suppose  it  must  have  had,  in  an  actual 
macoute,  namely,  a  piece  of  stuff,  a  fabric,  which 
the}*-  had  used  first  as  a  standard  of  value,  and 
afterwards  its  name  as  a  money  of  account.  It 
may  be  taken  as  settled,  that,  in  order  to  have  and 
maintain  the  name-dollar,  we  must  first  have  and 
maintain  the  thing-dollar.  Moreover,  it  is  impor- 
tant to  observe,  that,  when  the  thing-dollar  is 
changed,  there  is  no  corresponding  change  in  the 
name  by  which  we  denote  it.  We  call  it  a  dollar 
still. 

In  1834,  our  gold  dollar  was  reduced  4.45  per 
cent  in  weight,  and  1.81  per  cent  in  fineness, 
but  it  was  still  called  a  dollar  just  the  same. 
Only,  as  the  new  dollar  was  now  the  standard,  and 
was  considerably  less  valuable  than  the  old  one, 
the  minds  of  the  people  became  gradually  accus- 
tomed to  associate  the  word  dollar  with  a  lessened 
purchasing  power;  the  measure  in  men's  minds 
slowly  followed  the  fortunes  of  the  now  lighter 
coin,  and  became  lessened,  although  the  same 
name  attached  to  the  coin;  so  far  forth  as  the 
change  in  the  coin  was  concerned,  all  prices  were 
a  little  higher  than  before,  and  the  denomination- 
dollar  meant  a  little  less — measured  a  little  less — 


238      /  POLITICAL  ECONOMY. 

in  men's  minds  than  before.  This  is  one  of  the 
most  delicate  points  in  Political  Economy,  namely, 
that  a  word  spelled  and  sounded  as  before  cornea 
silently  to  mean  more  or  less,  according  as  the 
value  of  that  whose  name  the  word  is  becomes 
more  or  less.  The  value  changes  first,  the  measure 
changes  next,  and  the  denomination  does  not  change 
at  all. 

It  is  a  very  important  inference  from  this,  that 
the  only  way  to  keep  the  measure  of  values  steady 
is  to  keep  that  thing  steady,  whose  denomination 
furnishes  the  measure.  There  has  been  no  change 
in  our  gold  dollar  since  1834 ;  if  there  had  been  no 
other  legal-tender  dollar  in  this  interval  of  now 
about  forty  years,  we  should  have  had  as  steady  a 
measure  of  value  in  this  country  as  it  is  possible 
in  the  nature  of  things  to  have ;  and  there  is  no 
measure  used  among  men  any  thing  like  so  impor- 
tant to  be  maintained  as  uniform  as  possible  year 
in  and  year  out  as  the  measure  of  value;  since 
contracts  are  made  in  it,  annuities  are  measured 
by  it,  debts  are  incurred  in  the  light  of  it,  bequests 
are  made  in  the  terms  of  it,  expectations  are  built 
on  it,  and  all  business  breathes  through  it.  Any 
change  in  it,  making  it  measure  more  or  less,  in- 
volves an  inevitable  loss  to  many  persons,  involves 
a  shock  to  business  confidence  and  a  shattering  of 
irimy  hopes.  The  measure  inch  is  important  to 
human  welfare,  and  so  is  the  measure  pint  and  the 
measure  pound,  yet  all  these  combined  are  less 
vital  to  the  interests  of  men  than  the  measure 


MONET.  239 

dollar.  To  maintain  this  measure  uniform  should 
be  one  of  the  first  aims  of  Society ;  since  monuy 
is,  as  Mr.  Carey  has  well  called  it,  the  instrument 
of  association,  and  its  denominations  accordingly 
should  mean  the  same  from  January  to,  December, 
from  one  decade  to  another. 

Unfortunately,  legislation,  which  has  been  so 
often  in  manifold  ways  a  foe  to  exchanges,  has 
proved  their  greatest  foe  precisely  at  this  point. 
For  example,  in  1862,  the  Congress  of  the  United 
States  enacted  a  law,  that  its  own  paper  promises 
to  pay  gold  dollars  should  pass  in  lieu  of  the  dol- 
lars themselves,  and  should  be  a  legal-tender  for 
all  debts  public  and  private,  except  tariff-duties 
and  public  debt  interest.  This  law,  substituting 
the  shadow  for  the  substance,  the  sign  for  the 
thing  signified,  the  promise  to  pay  a  dollar  for  the 
dollar  itself,  changed  for  many  purposes  of  domes- 
tic trade  and  calculation  the  old  measure  of  value. 
The  real  dollars  of  course  abandoned  in  scorn  the 
circulation  in  which  they  were  legally  regarded 
as  of  no  more  consequence  than  the  unfulfilled 
promises  to  pay  them.  With  a  new  medium,  there 
came  in  of  course  a  new  measure,  if  that  can 
properly  be  called  a  measure,  which  varies  from 
day  to  day  and  from  month  to  month.  The  gold 
dollar,  nevertheless,  continued  to  be  the  standard, 
the  unit,  with  which  the  variations  of  the  green- 
backs were  compared  from  day  to  day.  For  more 
than  sixteen  years  the  value  of  the  greenback  dol- 
lar as  thus  compared  with  the  gold  dollar  varied 


240  POLITICAL  ECONOMY. 

with  almost  every  business  day  and  often  also  on 
the  same  day.  What  would  be  said  of  a  measure 
of  length  or  capacity,  —  a  yardstick  or  a  quart 
cup,  —  which  varied  like  that  ? 

The  variations  from  day  to  day,  however,  were 
little  in  comparison  with  the  changes  from  year  to 
year.  The  first  greenbacks  were  issued  in  the 
spring  of  1862.  and  before  that  year  was  out  they 
were  worth  (October)  only  72  cents  in  gold.  In 
the  course  of  the  next  year,  their  value  zigzagged 
between  the  two  extremes  of  80  and  58  cents  in 
gold.  During  1864,  they  were  worth  in  January 
65,  in  July  35,  and  in  December  43  cents  in  gold. 
During  the  succeeding  years,  their  value  slowly 
rose  on  the  whole,  —  falling  and  rising,  —  till  it 
reached  89  cents  in  1875,  94  cents  in  January, 
1877,  98  cents  in  January,  1878,  and  100  cents  in 
the  last  days  of  that  year.  The  bill  "  to  provide 
for  the  resumption  of  specie  payments  "  was  signed 
by  President  Grant  Jan.  14,  1875,  and  was  to 
become,  and  did  become,  operative  Jan.  1,  1879.1 

Now,  several  things  are  to  be  observed  in  the 
light  of  the  facts  just  narrated:  (1)  That  this 
paper  medium,  having  driven  gold  and  silver  out 
of  the  common  circulation  in  accordance  with  a 
universal  law  soon  to  be  explained,  and  notwith- 
standing it  was  constantly  compared  for  certain 
purposes  with  the  gold  dollar  still  used  for  tariff- 

1  I  have  used  for  these  figures  the  excellent  table  in  Boweu'a 
Political  Economy,  aiid  Mr.  Editor  Richardson's  little  pam- 
phlet, "  Paper  Money." 


MONEY.  241 

dues  and  public-debt  interest,  and  notwithstanding 
it  varied  in  actual  value  (assuming  gold  to  be  the 
standard)  from  35  cents  to  100  in  every  dollar, 
was  CALLED  a  dollar  all  the  time,  and  consequently, 
the  dollar-measure,  so  far  as  there  was  one  in  ordi- 
nary business,  varied  with  the  varying  purchasing- 
power  of  the  dollar-bill.  What  a  measure  that 
was  for  a  commercial  people  for  sixteen  years! 
An  india-rubbei  yardstick  for  measuring  cloth  is  a 
suitable  symbol  for  it.  Rational  calculations  in 
business  became  impossible.  (2)  That,  as  a  result 
of  this  uncertain  money  and  variable  measure  of 
values,  a  gigantic  commercial  crisis  dragged  its 
slow  length  along  for  five  years  between  1873  and 
1879 ;  failures  were  innumerable,  losses  uncount- 
able, and  business  despondency  well-nigh  univer- 
sal. There  can  be  no  question,  though  from  the 
nature  of  the  case  it  cannot  be  demonstrated,  that 
the  losses,  of  property  resulting  directly  and  indi- 
rectly from  the  adoption  of  this  .'alse  system  of  a 
paper  legal-tender  were  a  hundred-fold  greater 
than  all  the  expense  would  have  been  in  securing 
and  maintaining  an  honest  dollar  during  all  those 
years.  The  country  was  exporting  in  all  those 
years  raw  gold  and  silver  enough  to  keep  up  to 
the  brim  a  reservoir  of  gold  and  silver  coin.  (3) 
That  ths  making  a  paper-money  legal-tender  has 
little  or  no  effect  either  way  upon  their  value  in  the 
market.  While  they  were  full  legal-tender  for 
debts  (except  in  two  cases)  these  greenbacks  de- 
preciated 65  per  cent.  Some  notes  of  the  govern- 


242  POLITICAL  ECONOMY. 

ment  "not  bearing  interest,  but  payable  on  de- 
mand," issued  in  1861,  remained  at  par,  because 
they  were  redeemable,  though  not  originally  a  legal 
tender.  Both  were  alike  promises-to-pay ;  but  the 
redeemable  non-legal-tenders  kept  up,  while  the 
irredeemable  legal-tenders  went  down.  Some  con- 
venience, indeed,  is  added  to  a  paper  money  by 
making  it  a  legal-tender  for  debts,  but  the  very 
making  it  legal-tender  implies  some  doubt  on  the 
part  of  the  government  of  the  validity  of  its  own 
promises.  If  the  government  is  going  to  fulfil  them 
according  to  their  tenor,  what  need  to  compel  peo- 
ple to  take  them  ?  So  that  this  artificial  quality 
added  to  a  paper-promise  does  not  seem  to  add  to 
its  value.  (4)  That  the  disuse  of  the  gold  dollar 
in  ordinary  payments  in1  consequence  of  the  use  of 
the  cheaper  paper  dollar  probably  made  the  gold  it- 
self cheaper  than  it  otherwise  would  have  been,  in- 
asmuch as  there  was  a  less  demand  for  gold,  and  a 
lessened  demand  for  any  thing  (other  things  being 
equal)  always  lessens  the  value  of  that  thing.  If 
this  were  so,  then  the  daily  comparison  of  the 
greenback  with  the  gold  dollar  did  not  indicate 
fully  what  the  depreciation  of  the  paper  would  have 
been  had  the  gold  still  circulated,  —  in  other  words, 
gold  itself  was  cheaper  than  was  natural,  and  so 
the  premium  on  gold  as  compared  with  paper 
money  was  less  than  the  average  inflation  of  other 
prices.  That  this  was  so,  seems  to  be  proved  by 
the  regular  exportation  of  the  annual  product  of 
the  mines  during  those  sixteen  years,  and  also  of 


MONEY.  243 

a  considerable  portion  of  the  stock  of  coin  had  m 
hand  in  1862.  Still,  while  it  is  not  claimed  that 
gold  under  any  circumstances  is  an  absolute  stand- 
ard of  value,  which  is  a  contradiction  in  terms  and 
an  impossibility  in  fact,  but  only  that  it  is  the  best 
attainable  standard,  and  better  when  the  sole  legal- 
tender  and  a  part  at  least  of  the  current  money, 
the  gold  dollar,  though  practically  demonetized 
and  discarded,  was  the  only  accessible  standard  of 
comparison  during  this  interval  of  the  destruction 
of  natural  values,  and  doubtless  gave  us  results 
when  compared  with  the  paper  at  least  approxi- 
mately accurate. 

Perhaps  it  ought  also  to  be  noticed  in  this  con- 
nection, that,  since  gold  was  in  demand  as  a 
medium  during  those  sixteen  years  for  two  limited 
purposes  only,  namely,  by  merchants  in  order  to 
pay  their  tariff-dues,  and  by  the  National  govern- 
ment, and  also  at  least  by  one  State  government, 
—  that  of  Massachusetts,  —  in  order  to  pay  the 
interest  on  their  bonds,  and  became  in  consequence 
more  than  ordinarily  a  mere  commodity ;  the  varia- 
tions in  the  daily  quotations  may  sometimes  have 
been  owing  to  the  greater  or  less  difficulty  than 
usual  in  getting  gold  for  that  day.  In  such  cases 
"  corners  "  are  easily  made. 

We  are  now  in  position  to  entertain  the  propo- 
sition that  gold  and  silver  constitute  the  best  money. 

1.  The  first  and  main  reason  for  the  truth  of 
this  proposition  is,  that  these  metals  have  been 
found  by  experience  to  be  less  subject  to  fluctua- 
tions in  their  value  than  any  other  articles  known 


244  POLITICAL  ECONOMY. 

Since  money  is  the  standard  of  value,  it  follows 
that  that  which  is  to  serve  as  money  must  be  both 
valuable  and  as  little  as  possible  subject  to  varia- 
tions in  value.  Gold  and  silver  meet  this  essen- 
tial test  better  than  any  thing  else.  Many  other 
things  have  been  tried,  as  we  have  seen,  but  these 
have  all  with  one  exception,  namely,  paper-prom- 
ises, been  long  ago  discarded  by  all  the  more  civ- 
ilized nations  in  favor  of  gold  and  silver.  Saga- 
city, which  early  lighted  on  these  metals  as  money, 
has  been  confirmed  by  experience,  which  has 
steadily  and  increasingly  held  on  to  them  as 
money;  and  it  has  been  the  perception  on  the 
part  of  the  most  enlightened  minds,  that  these 
metals  maintain  their  value  steadier  than  any  tiling 
else,  that  has  kept  them,  and  is  likely  to  keep, 
them,  the  money  of  the  world. 

It  is  true,  that  silver  has  experienced  during 
and  since  1876  a  remarkable  decline  in  value,  and 
that  it  has  been  subject  heretofore  to  some  consid- 
erable variations,  particularly  after  the  discovery 
and  conquest  of  the  silver  mines  oft  the  new  world 
by  the  Spaniards,  and  that  the  perception  of  this, 
together  with  the  undoubted  difficulty  of  main- 
taining a  double  standard  consisting  of  gold  and 
silver  both,  has  led  some  of  the  leading  nations, 
as  England,  Germany,  and  the  United  States,  to 
make  gold  alone  the  standard,  and  use  silver  only 
for  subsidiary  coins;  still,  after  all,  it  remains 
true  that  silver,  next  to  gold,  constitutes  the  best 
money,  and  that  gold  and  silver  together  in  right 


MONEY.  245 

adjustments  constitute  an  almost  ideal  and  perfect 
money.  In  respect  to  the  present  decline  of  sil- 
ver, it  must  be  said,  that  the  average  price  in  gold 
for  the  30  years  prior  to  1876  was  nearly  60  pence 
an  ounce  in  the  London  market ;  that  in  the  year 
named  it  experienced  a  sudden  fall,  and  went 
down  for  a  few  days  to  the  neighborhood  of  46£ 
pence ;  that  it  has  since  been  slowly  rallying,  and 
now  stands  at  about  52  pence ;  that  the  only 
explanation  of  this  great  decline  is  the  present 
and  prospective  fertility  of  the  silver  mines  in  the 
western  parts  of  the  United  States,  and  the  fact 
that  German}',  having  adopted  the  sole  standard 
of  gold,  seemed  to  menace  the  silver  market  with 
the  sale  of  her  old  silver;  and  that  no  reasons  are 
known  why  the  value  of  silver  as  measured  in 
gold  may  not  be  hereafter  as  steady  as  it  has  been 
heretofore,  though  there  seem  to  be  some  reasons 
in  the  superior  productiveness  of  silver  mines  and 
in  the  abandonment  of  the  double  standard  by 
some  of  the  nations  why  silver  may  rule  at  a 
lower  value  in  gold  than  heretofore. 

Indeed,  silver  has  already  pretty  steadily, 
though  on  the  whole  very  slowly,  declined  in  its 
power  to  purchase  gold  from  the  earliest  notices 
of  their  comparative  value  till  the  present  time. 
Livy  mentions  that  their  relative  value  was  1  to 
10  about  189  B.C.;  Suetonius  says  that  Julius 
Cassar  on  one  occasion  exchanged  the  two  at  1 
to  9 ;  under  the  early  Roman  emperors  it  was  1  to 
12,  and  from  Constantino  to  Justiuian  about  1 


246  POLITICAL  ECONOMY. 

to  14  In  Greece,  it  was  much  the  same,  since 
Herodotus  mentions  it  as  1  to  13,  in  his  day, 
which  was  the  fifth  century  before  Christ,  though 
Plato,  a  little  later,  calls  it  1  to  12.  In  England, 
before  the  discovery  of  America,  it  was  about  1  to 
10;  after  that  discovery  and  its  consequences, 
silver  declined  till  in  1717  the  last  legal  rating 
of  the  two  put  them  at  1  to  15^;  and  in  1816,  the 
double  standard  was  abandoned,  silver  was  practi- 
cally demonetized  by  debasing  the  coins  in  weight, 
and  since  then  has  only  been  legal-tender  to  the 
amount  of  40  shillings. 

In  the  United  States,  when  the  mint  was  first' 
established  in  1792,  the  legal  rate  of  exchange  for 
the  two  metals  was  fixed  at  1  to  15,  which  proved 
an  under-valuation  of  gold,  and  tended  to  drive 
the  gold  coins  abroad  ;  in  1834,  this  difficulty  was 
sought  to  be  remedied  by  a  new  legal  valuation 
,  which  made  the  rate  1  to  16,  and  this  went  too  far 
the  other  way,  and  led  to  the  exportation  of  silver 
coins;  and  in  1853,  the  double  standard  was  aban- 
doned by  the  United  States  also.  Still,  silver  held 
its  own  in  the  market,  and  even  for  a  while  gained 
upon  gold,  standing  in  1859  at  1  to  15|,  since 
which  time  silver  has  grown  cheaper,  standing 
much  of  the  time  since  1876  at  about  1  to  18. 
Notwithstanding  these  variations  as  towards  each 
other,  and  consequently  as  towards  all  other  sala- 
ble things,  gold  and  silver  have  been  in  the  past 
the  steadiest  in  their  value  of  any  articles  known 
amcng  men,  and  are  likely  to  continue  so  in  the 


MONEY.  247 

time  to  come,  and  we  are  able  to  give  some  good 
reasons  for  this. 

"*  (1.)  The  demand  for  these  metals  is  very  steady. 
They  are  wanted  for .  two  general  purposes,  first, 
for  use  as  money,  and  second,  for  use  in  the  arts. 
Probably  not  far  from  one  half  of  the  aggregate 
of  these  metals  in  the  world  is  in  the  form  of 
money,  and  the  other  half  in  the  form  of  plate, 
utensils,  art-works,  and  ornaments.  It  makes  no 
difference,  so  far  as  value  is  concerned,  for  what 
purpose  any  object  is  desired ;  and  the  demand  for 
these  metals  for  use  in  the  arts  and  for  purposes 
of  ostentation  contributes  to  the  steadiness  of  their 
value  just  as  much  as  the  demand  for  them  as 
money;  and  the  result  of  this  demand  has  this 
additional  advantage,  that  there  is  always  at  hand 
in  the  form  of  plate  a  reservoir  from  which  a 
chance  chasm  in  the  coin  may  be  replenished,  or 
an  extra  demand  for  it  met.  As  a  parallel  case, 
barley  is  steadier  in  its  value  than  it  otherwise 
would  be  because  it  is  in  demand  for  food  and  also 
for  malting  purposes.  It  is  the  combined  demand 
for  all  uses  that  helps  to  give  any  thing  its  value ; 
and  accordingly,  it  is  fortunate  for  the  interests 
of  gold  and  silver  as  money,  that  there  is  a  con- 
etant  and  well-nigh  universal  demand  for  them  in 
the  useful  arts  and  for  purposes  of  luxury.  Since 
the  value  does  not  depend  on  one  use  but  or. 
many  uses,  an  ounce  of  bullion  of  standard  fine- 
ness destined  for  the  smelting-pot  of  the  artisan  is 
worth  within  a  trifle  as  much  as  an  ounce  of 
coined  money. 


248  POLITICAL  ECONOMY. 

The  Bank  of  England  is  obliged  by  law  to 
buy  all  bullion  and  foreign  coins  of  standard 
fineness  offered  to  it  at  £3  17s.  Qd.  per  ounce, 
which,  when  coined,  only  make  <£3  17s.  10-kd. — 
a  difference  of  three  halfpence.  If,  in  the  prog- 
ress of  civilization,  less  gold  and  silver  should  be 
desired  for  purposes  of  ostentation,  more  doubt- 
less will  be  wanted  in  the  useful  arts,  and  much 
(perhaps  more  than  at  present)  in  the  form  of 
money,  so  that  there  is  a  prospect  of  a  steady 
demand  for  them  in  the  future,  as  there  has  been 
in  the  past,  and  this  steady  demand  is  one  condi- 
tion of  a  steady  value,  and  a  steady  value  is  the 
grand  condition  of  a  good  money. 

(2.)  The  cost  of  production  of  these  metals  is 
yery  uniform.  Correspondent  to  a  steady  demand 
there  is  a  steady  supply  under  circumstances  giv- 
ing a  pretty  uniform  cost  of  production  the  world 
over.  Nature  herself  has  indicated,  in  a  manner 
not  to  be  mistaken,  her  intention  that  these  metals 
should  be  the  money  of  the  nations.  She  has 
scattered  them  almost  all  over  the  earth,  not 
much  on  the  surface  where  they  can  be  gathered 
without  difficulty,  but  in  the  rocks  which  require 
to  be  crushed  before  they  will  yield  their  treas- 
ures. There  were  surface  washings  in  California 
from  the  rocks  already  disintegrated  by  nature, 
but  these  were  soon  exhausted ;  special  inventions 
have  facilitated  mining  as  well  as  other  branches 
of  industry ;  some  mines  are  richer  by  nature  or 
better  located  than  others ;  yet,  on  the  whole,  the 


MONET.        w  249 

obstacles  are  pretty  much  the  same  everywhere  — 
the  cost  of  production  is  remarkably  uniform.  If 
the  ores  become  richer,  they  are  apt  to  be  deeper 
down  in  the  bowels  of  the  earth.  Water  becomes 
an  enemy,  as  well  as  gravitation.  Sentinels  of 
some  sort  guard  faithfully  their  Golden  Fleece. 

Sometimes  it  becomes  more  profitable  to  work 
over  again  the  slag  of  former  ages  through  im- 
proved modern  methods  than  to  make  fresh  incur- 
sions into  the  rock,  as  a  French  company  is  now 
working  in  the  once-used  material  of  the  silver 
mines  of  Laurium  in  Greece  —  those  mines  to 
which  Xenophon  gave  his  attention  in  the  earliest 
known  treatise  on  Political  Economy.  There  is 
an  illusion  in  the  minds  of  some  men,  as  if  it  were 
possible  for  many  to  get  rich  suddenly  by  mining, 
through  overlooking  the  fact  that  the  value  of 
gold  and  silver  depends  on  desires  and  efforts 
just  like  every  other  value.  If  men  should  find  a 
mountain  of  gold,  they  would  also  find  that  its 
value  would  decline  in  some  proportion  to  the  now 
greater  ease  of  obtaining  it.  As  it  is,  the  cost  of 
production  is  large  and  steady,  and  this  is  the 
second  condition  of  a  steady  value. 

(3.)  The  great  quantity  of  these  metals  is 
favorable  to  their  steady  value.  The  accumula- 
tions of  ages  are  so  vast,  that  they  receive  the 
annual  tribute  from  the  mines,  much  as  the  ocean 
receives  the  waters  of  the  rivers,  without  sensible 
increase  of  its  volume,  and  part  with  the  annual 
loss  by  abrasion  and  shipwreck,  as  the  sea  yields 


250  POLITICAL  ECONOMY. 

its  waters  to  evaporation,  without  sensible  diminu- 
tion of  volume.  The  yearly  supply  and  the  yearly 
waste  are  small  in  comparison  with  the  whole  mass ; 
and  therefore  the  relation  of  the  whole  mass  to 
the  uses  of  the  world,  as  well  as  the  purchasing- 
power  of  any  given  portion,  remain  comparatively 
steady.  Quantity  is  not  an  element  in  value 
strictly  so  called,  but,  in  connection  with  dura- 
bility, it  is  an  element  in  steadiness  of  value. 
Slight  changes  scarcely  affect  a  great  mass  of  any 
thing  so  imperishable  as  gold  and  silver.  The 
mountain  streams  are  indeed  washing  down  the 
sides  of  Greylock,  in  plain  sight  from  my  window 
at  this  moment,  but  Greylock  looms  as  high  and 
stands  as  firm  as  when  the  eye  of  the  first  white 
man  rested  on  it.  It  is  probable  that  production 
at  the  mines  might  cease  altogether  for  a  little 
interval  without  very  sensibly  enhancing  through- 
ou  t  the  commercial  world  the  value  of  gold ;  as  it 
is  certain,  from  experience,  that  a  production 
1/trgely  augmented  only  gradually  diminishes  its 
value. 

The  mass  of  the  precious  metals  has  been  aptly 
compared  to  the  heavy  balance-wheel  in  mechan- 
ics, which  preserves  an  equable  and  working  con- 
dition of  the  machinery  under  any  sudden  increase 
of  the  power,  and  even  when  the  power  is  for  a 
moment  withdrawn.  So  far  as  the  annual  pro- 
duction from  the  mines  exceeds  the  yearly  waste, 
a  natural  and  beautiful  provision  is  made  for  an 
increased  demand  for  use  in  currency  and  in  the 


MONEY.  251 

arts,  without  much  disturbing  the  previous  rela- 
tion of  supply  and  demand.  Perishable  things, 
like  apples,  lose  their  value  rapidly  under  an 
abuudant  supply,  because  they  must  be  used  soon 
or  never :  durable  things,  like  silver  and  gold, 
especially  when  they  exist  in  great  mass  and 
under  a  steady  demand,  hold  their  value  steadily 
amid  temporary  changes,  and  thus  furnish  another 
condition  of  a  good  money. 

(4.)  The  fluency  of  these  metals  is  favorable  to 
a  steady  value.  They  have  great  value  in  small 
compass.  They  can  be  carried  easily  from  place 
to  place  without  any  loss.  They  are  in  strong 
demand  almost  everywhere  in  the  world.  When- 
ever, from  any  cause,  they  become  relatively  in 
excess  in  any  country,  and  thus  lose  a  portion  of 
their  previous  purchasing-power,  there  is  an  im- 
mediate motive  to  export  them  to  other  countries 
where  their  power  in  exchange  is  greater,  and 
thus  the  equilibrium  tends  to  restore  itself.  There 
is  both  a  private  and  a  public  gain  in  thus  carry- 
ing them  away,  because  they  will  buy  more  abroad 
than  at  home,  and  because  their  export  helps 
maintain  at  home  and  abroad  their  own  steady 
value,  which  is  a  great  public  gain.  Formerly,  the 
nations  were  so  foolish  as  to  prohibit  the  export  of 
gold  and  silver.  Cicero  tells  us,  that  this  was 
done  at  Rome :  —  "  The  Senate  solemnly  decreed 
both  many  times  previously,  and  again  when  I  was 
consul,  that  gold  and  silver  ought  not  to  l>e 
exported."  Adam  Smith  tells  us,  that  there  are 


252  POLITICAL  ECONOMY. 

acts  of  the  old  Scotch  Parliament  which  prohibit 
under  heavy  penalties  "  the  carrying  gold  and 
silver  forth  of  the  kingdom." 

England,  France,  Spain,  and  probably  every 
other  country  in  Europe,  did  the  same  thing ; 
Spain  especially,  which  became  proprietor  in  the 
sixteenth  century  of  the  mines  of  the  new  world, 
suffered  immense  losses  through  her  prohibitions, 
since  the  precious  metals,  which  came  in  in  masa 
in  treasure  ships  from  the  West,  were  smuggled 
out  in  detail  in  galleys  and  fishing  craft.  At 
length,  England,  under  the  powerful  influence  of 
the  East  India  Company,  which  found  it  profitable 
to  export  silver  to  the  East,  repealed  her  prohibi- 
tions in  1663,  and  gave  that  Company  and  private 
traders  liberty  to  export  freely.  At  present,  no 
civilized  nation  attempts  to  prevent  the  export  or 
import  of  gold  and  silver;  and  the  remnants  of 
prejudice  in  this  country  against  exporting  gold  are 
fast  dying  out.  The  gold  is  not  given  away ;  it  is 
sold,  and  sold  for  more  than  it  will  bring  at  home  ; 
otherwise  it  would  not  be  carried  abroad.  There 
is  the  same  immediate  gain  in  this  as  in  other 
exchanges,  with  the  great  incidental  advantage  in 
addition,  that  such  action  tends  to  keep  the  value 
of  the  metals  pretty  uniform  everywhere.  Under 
freedom,  they  go  and  come  at  will.  In  1850-1860, 
both  years  inclusive,  the  United  States  exported 
$502.789,759,  coin  and  bullion,  and  during  the 
same  period  imported  $81,270,571,  coin  and  bul 
lion.  These  metals  may  be  called  the  blood  of 


MONEY.  253 

international  commerce,  and  there  are  natural  arte- 
ries and  veins  for  them  to  flow  through  ;  they  will 
go,  as  the  blood  does  in  the  body,  where  they  are 
most  wanted,  and  will  return  as  freely  when  they 
are  wanted  most  at  home. 

It  may  be  laid  down  as  an  axiom,  that  no 
country  will  export,  for  the  sake  of  getting  other 
things,  those  things  which  are  more  needful  for  its 
own  welfare  ;  and  there  need  be  no  fear  that  any 
nation  which  cultivates  its  own  advantages  under 
freedom  will  ever  lack  a  sufficiency  of  gold  and 
silver  for  all  purposes  of  money.  The  greater  the 
enterprise  and  skill,  the  keener  the  development 
of  all  peculiar  and  presently  available  resources, 
the  more  honorable  and  free  the  commercial  sys- 
tem, the  surer  is  any  nation,  whether  it  be  a  gold- 
bearing  country  or  not,  of  securing  the  gold  and 
silver  which  it  needs.  This  is  so,  because  there  will 
be  a  good  market  to  buy  in,  and  they  who  have  gold 
will  resort  thither  to  buy.  Great  Britain  is  not  a 
gold-producing  country,  but  London  nevertheless 
is  the  bullion  market  of  the  world.  The  precious 
metals  flow  into  and  away  from  that  market,  just 
as  the  tide  flows  up  the  Thames  and  ebbs  away 
igain,  because  the  business  of  the  world  centres 
in  London,  and  wherever  business  is  there  must  be 
money.  Now,  the  fluency  of  gold  and  silver,  by 
which  they  pass  so  easily  in  commerce  to  those 
places  where  their  present  value  in  exchange  is 
greatest,  and  return  as  easily  when  the  conditions 
are  reversed,  tends  powerfully  to  keep  their  \alue 


254  POLITICAL  ECONOMY. 

steady  throughout  the  commercial  world,  and  con- 
sequently to  make  them  the  best  standard  of 
value,  that  is,  the  best  money.  , 

(5.)  The  durability  of  the  precious  metals  is 
favorable  to  the  steady  value  of  the  money  made 
from  them  in  this  respect  also,  that  the  coins  on 
occasion  may  pass  very  rapidly  round  i:  the  circu- 
\ation  without  much  loss  from  abrasion,  and  thus 
temporarily  do  the  work  in  exchange,  whicli  would 
otherwise  require  an  enlargement  of  the  mass  of 
money.  An  increased  rapidity  of  circulation, 
which  coin  is  capable  of  without  impairing  it, 
meets  the  temporary  extra  demands  for  money 
without  increasing  the  stock  of  coin,  and  thus 
tends  admirably  to  keep  the  value  steady  within 
certain  limits.  If  the  mass  had  to  be  increased  in 
brisk  times,  then  its  value  would  decline  in  slack 
times.  When  enterprises  are  multiplying  and 
exchanges  are  being  permanently  increased  in 
number  and  variety,  then  there  must  be  a  larger 
amount  of  money,  and  this  larger  amount  will  be 
secured  in  the  ways  already  indicated,  with  per- 
haps slight  disturbances  of  value ;  but  the  tem- 
porary ebbs  and  flows  of  business  need  have  no 
effect  at  all  on  the  mass  of  metallic  money,  but 
only  on  its  movement,  and  its  value  consequently 
is  not  disturbed  at  all.  This  delicate  function  of 
faster  and  slower  movement  cannot  be  so  well 
performed  by  paper-money,  partly  because  that  is 
rapidly  worn  out  and  requires  new  issues,  but 
mainly  because  there  is  no  such  confidence  in  mere 


MONEY.  255 

promises  as  is  always  and  everywhere  accorded  to 
gold  and  silver  coins.  Great  pains  have  some- 
times been  taken  in  this  country  to  get  paper- 
money  out  into  circulation,  and  off  to  a  distance 
from  the  place  of  issue,  so  that  it  cannot  easily 
get  back :  it  does  not  go  of  itself,  as  go  and  come 
the  coins.  This  fifth  point,  though  subordinate 
to  the  others,  is  worthy  of  enumeration  along  with 
them,  and  is  another  ground  of  the  steady  value 
of  gold  and  silver  money. 

2.  The  second  general  reason  why  gold  and 
silver  constitute  the  best  money  is  the  important 
fact,  that  governments  have  little  to  say  or  do  about 
the  value,  quantity,  or  mode  of  circulation,  of  such 
money.  In  all  essential  respects  such  money  is 
wholly  self-regulating,  while  its  only  competitor  in 
civilized  countries,  namely,  paper-money,  is  always 
the  creature  of  some  government,  which  deter- 
mines the  conditions  of  its  issue,  and  attempts,  at 
least,  to  secure  the  reality  of  its  redemption.  We 
have  already  seen  that  coins  do  not  owe  their 
value  to  the  stamp  of  the  government,  since  the 
metal  in  them  is  worth  within  a  trifle  as  much 
before  coinage  as  after.  Coinage  publicly  attests 
the  quantity  and  quality  of  the  metal  in  4he 
coin,  and  that  is  all.  Of  the  value  of  their  coins 
governments  say  nothing.  They  can  say  nothing. 
That  depends  on  men's  judgments,  arid  not  on 
edicts  at  all.  No  law  of  the  United  States  can 
add  a  fraction  of  a  cent  to  the  value  of  a  gold 
dollar.  The  law  says,  that  a  gold  dollar  shaU 


256  POLITICAL  ECONOMY. 

consist  of  25 1  grains  troy  of  gold  nine-tenths  fine, 
the  mint  stamps  it  as  of  that  weight  and  fineness, 
and  it  thereafter  takes  its  own  chance  as  to  value. 
Government  has  done  with  it.  It  is  now  in  the 
hands  of  the  people. 

If  the  government,  however,  thinks  it  best  to 
maintain  a  double  standard,  that  is,  a  silver  dollar 
legal-tender  to  all  amounts  alongside  a  gold  dol- 
lar equally  legal-tender,  then  it  must  take  upon 
itself  to  decide  the  relative  value  of  the  two  met- 
als each  in  each.  Thus  England  said  in  1717, 
that  1  ounce  gold  in  her  coinage  should  equal 
15^  ounces  silver  in  the  same ;  the  United  States 
said  in  1792,  that  1  ounce  gold  in  their  coinage 
should  equal  15  ounces  silver,  and  again  in  1834, 
that  1  ounce  gold  should  equal  16  ounces  silver ; 
but  no  one  of  these  edicts  happened  to  hit  the 
market-rate  of  the  two  each  in  each  at  the  time, 
and  the  market-rate  thereafter  in  each  case  did 
not  pay  any  attention  to  the  law,  but  adjusted 
itself  independently  under  the  law  of  supply  and 
demand,  shrewd  debtors  paid  their  debts  in  which- 
ever metal  happened  at  the  time  to  be  relatively 
cheaper,  exporters  sent  abroad  in  balances  the 
metel  legally  undervalued  at  home,  and  practical 
difficulties  arising  from  these  sources  led  both 
these  countries,  the  former  in  1816,  and  the 
latter  in  1853,  to  discard  the  double  standard. 
Silver  coins  in  England  are  only  legal-tender  to 
the  sum  of  40  shillings. 
""  In  1878,  after  25  years'  experience  of  the  sin- 


MONEY.  257 

gle  standard,  the  United  States  returned  to  the 
old  method  through  a  law  requiring  the  minting 
in  large  quantities  of  a  silver  dollar  of  the  old 
weight  and  fineness,  that  is,  412f  grains,  -j9^  fine. 
This  dollar  contains  precisely  the  same  amount  of 
fine  silver  that  the  American  dollar  has  always 
held ;  namely,  371i  grains.  If  any  reader  quick 
at  figures  will  divide  this  sum  by  23.22,  the 
number  of  grains  of  fine  gold  in  a  gold  dollar, 
he  will  find  the  ratio  to  be  substantially  16  to  1, 
just  as  it  was  established  in  1834.  The  law  of 
1878  made  this  silver  dollar  legal-tender  for  all 
debts,  public  and  private ;  but  the  fall  in  the  value 
of  silver,  under  natural  law,  overrode  the  statute, 
kept  the  silver  dollar  below  par  in  gold,  and  kept 
it  also  out  of  general  circulation.  When  silver 
bullion  is  worth  about  52  pence  in  London,  our 
silver  dollar  is  worth  about  88  cents  in  gold.  We 
have  also  subsidiary  silver  coins,  which  are  only 
legal-tender  to  the  amount  or  $5;  and  these, 
since  1875,  are  minted  on  the  metric  system ;  so 
that  two  half-dollars,  or  four  quarters,  or  ten 
dimes,  weigh  each  just  25  grams,  or  385.8  grains, 
•fo  fine ;  and  consequently  a  nominal  dollar's 
worth  of  small  silver  is  really  worth  6£  per  cent 
less  than  a  silver  dollar-piece.  Our  five-cent 
nickel  piece  is  both  subsidiary  and  doubly  metric : 
it  weighs  5  grams,  and  five  of  them  laid  along  in 
order  are  a  decimeter  long,  and  they  are  legal- 
tender  for  only  $1.  The  three-cent  nickel  piece, 
like  the  five-cent,  is  75  parts  copper  and  25  parts 


258  POLITICAL  ECONOMY. 

nickel,  and  debts  of  sixty  cents  can  be  legally 
paid  in  them.  The  one-cent  piece  is  95  parts 
copper  and  5  parts  tin  zinc,  and  debts  of  four 
cents  can  be  paid  in  them.  Governments,  ac- 
cordingly, while  they  make  a  public  profit  out  of 
the  issue  of  subsidiary  coins,  —  their  value  as 
money  being  much  above  their  value  as  bullion,  — 
and  while,  if  there  be  a  double  standard,  they 
must  determine  the  legal  relation  of  the  two 
metals  to  each  other,  can  not  settle  the  actual 
relative  value  of  the  two,  which  follow  their  own 
laws,  and  pursue  their  own  course,  with  very  little 
reference  to  mints. 

While  the  United  States  went  back,  in  1878,  to 
the  double  standard  they  had  once  abolished, 
several  of  the  principal  nations  have  taken  the 
opposite  tack.  The  French,  for  example,  had  the 
single  (silver)  standard  till  1803,  when  the  double 
standard  was  introduced  in  the  legal  ratio  of 
15.50  :  1 ;  but  the  value  of  silver  in  gold  was 
really  less  than  this  down  to  1850,  averaging 
15.65  :  1;  between  1850  and  1866,  silver  rose  to 
15.19  :  1 ;  but  it  sank  again  gradually,  till  in  1878 
it  stood  at  17.92  :  1,  though  the  coinage  of  silver 
had  practically  ceased  in  1876,  since  which  the 
French  have  had  the  single  (gold)  standard. 
Germany  passed  from  silver  to  gold  by  the  laws 
of  1871  and  1873,  the  latter  of  which  ordered 
that  silver  should  not  exceed  ten  marks  per  head 
of  population.  At  the  close  of  1879  there  were 
in  circulation  1,550,000,000  marks  gold,  and  856,- 


MONEY.  259 

000,000  marks  silver,  that  is, -37  per  cent  silver, 
showing  that  the  law  of  1873  had  not  been  fully 
carried  out.  The  Scandinavian  kingdoms  in  1873, 
and  Holland  in  1875,  adopted  the  single  standard 
of  gold.  The  latter,  indeed,  established  a  ratio 
of  15.625  :  1,  but  the  coinage  of  silver  was  sus- 
pended, and  the  coinage  of  gold  made  free.1  All 
these  facts  illustrate  the  main  point  we  have  now 
in  hand. 

Governments,  too,  wisely  leave  to  the  people 
the  whole  question  of  the  quantity  and  mode  of 
circulation  of  their  principal  and  wholly  legal- 
tender  coins.  The  Bank  of  England  is  obliged 
by  law  to  buy  and  pay  for  in  coin  all  gold  bullion 
offered  it  for  sale,  paying  for  it  three  half-pennies 
less  by  the  ounce  than  the  bullion  will  make  of 
stamped  coin.  This  is  the  same  thing  as  coining 
for  all  comers  all  the  gold  they  bring  at  a  seignior- 
age of  .032  per  cent,  practically  equivalent  to 
free  coinage.  By  the  law  of  1874,  the  United 
States  charge  nothing  for  coining  gold;  the  French 
government  charge  .216  per  cent  seigniorage  on 
gold  coins ;  so  that,  practically,  it  is  left  to  the 
people  to  say  how  much  money  they  will  have 
coined,  and,  having  received  it  from  the  mint, 
they  are  at  liberty  to  do  just  what  they  please 
with  it,  —  they  may  hoard  it,  they  may  melt  it  up, 
they  may  circulate  it  at  home,  they  may  export  it 
abroad,  at  will.  Now,  it  is  a  great  gain  to  have 

i  Most  of  the  facts  in  this  paragraph  are  drawn  from  Meyer'f 
Konversations-lexlkon  (Oral  supplementary  volume,  1880). 


260  POLITICAL  ECONOMY. 

a  money  with  which  the  government  has  nothing 
to  do  except  to  mint  it,  —  a  money  that  asks  no 
favors,  needs  no  puffing,  never  deceives  anybody, 
knows  how  to  take  care  ef  itself,  is  always  respect- 
able and  universally  respected. 

3.  The  third  general  reason  why  gold  and  sil- 
ver constitute  the  best  money  is  found  in  their 
physical  peculiarities,  by  which  they  are  uniform 
in  quality,  conveniently  portable,  divisible  without 
loss,  easily  impressible,  and  always  beautiful.  Pure 
gold  and  silver,  no  matter  where  they  are  mined, 
are  exactly  of  the  same  quality  all  over  the  earth. 
Gold  is  gold,  and  silver  is  silver.  The  gold  mined 
to-day  in  California  differs  in  no  essential  respects 
from  the  gold  used  by  Solomon  in  the  construction 
of  the  Temple,  and  the  silver  out  of  the  Nevada 
mines  is  the  same  thing  as  the  silver  paid  by  Abra- 
ham for  the  cave  of  Machpelah.  Nature  with  her 
wise  finger  has  thus  stamped  them  for  the  univer- 
sal money ;  and  a  universal  coinage,  that  is,  coins 
of  the  same  degree  of  fineness,  and  brought  into 
easy  numerical  relations  with  each  other  in  respect 
to  weight,  and,  though  coined  in  the  four  quarters 
of  the  globe,  yet  current  everywhere  by  virtue  of 
universal  confidence  in  them,  for  which  the  first 
grand  provision  is  this  uniformity  of  quality,  is 
one  of  the  dreams  and  hopes  of  economists,  that 
is  yet  to  be  realized  in  the  future. 

Gold  and  silver  are  sufficiently  portable  for  all 
the  purposes  of  modern  money.  Their  weight  is 
little  relatively  to  their  value.  A  thousand  dollars 


MONEY.  261 

in  gold  are  not  indeed  carried  so  easily  as  a  bill  of 
exchange  or  a  bank-note ;  and  expedients  are 
easily  adopted,  and  have  been  in  use  since  the 
days  of  the  Romans,  by  which  the  transfer  in 
place  of  large  masses  of  coin  is  for  the  most  part 
obviated ;  these  expedients  will  all  be  explained  in 
the  following  chapter  on  Credit;  our  proposition 
does  not  deprecate  at  all  the  use  of  these  expedi- 
ents of  commerce,  which  are  mere  credit  and  not 
money  proper;  but  for  money  proper,  for  that 
which  gives  birth  to  and  maintains  the  denomina- 
tions of  value,  for  that  which  passes  from  hand  to 
hand  in  ordinary  exchanges,  we  do  maintain  that 
gold  and  silver  coins  are  conveniently  portable.  I 
have  myself  carried  across  the  ocean,  incased  in  a 
glove-finger  and  borne  in  a  vest-pocket,  a  troy 
pound  of  English  sovereigns  worth  about  $230, 
scarcely  conscious  of  their  weight,  although  easily 
re-assured  of  their  presence  by  a  touch  of  the 
hand.  The  experience  of  those  countries,  like 
France  and  Germany,  in  which  the  money  has 
been  mostly  metallic,  has  not  pronounced  it  oner- 
ous on  account  of  its  weight ;  and,  at  any  rate,  it 
is  better  to  accept  all  the  other  immense  advan- 
tages of  gold  and  silver  money,  together  with  a 
little  inconvenience  as  to  weight,  if  one  chooses  to 
insist  on  that,  than  to  adopt  substitutes  every  way 
inferior  as  money,  except  that  they  are  lighter  in 
our  purses.  They  are  unfortunately  "  lighter  "  in 
other  respects  also. 

Moreover,  gold   and  silver  differ  from  jewels, 


262  POLITICAL  ECONOMY. 

and  most  other  precious  things,  in  that  masses  of 
them  are  divisible,  without  any  loss  of  value,  into 
pieces  of  any  required  size.  The  aggregate  of 
pieces  is  worth  as  much  as  the  mass,  and  the  mass 
as  much  as  the  pieces.  This  is  a  great  advan- 
tage in  money,  because  for  the  convenience  of 
business,  a  considerable  variety  of  coins  is  re- 
quired, and  the  proper  proportion  of  each  kind  is 
a  matter  of  trial,  and  if  any  kind  be  minted  in 
excess  of  the  demand  nothing  more  is  required 
than  to  remint  in  other  denominations,  and  the 
whole  value  is  thus  saved  to  the  currency  in  the 
most  convenient  form. 

Then,  gold  and  silver  are  easily  impressible  by 
any  stamp  which,  the  government  chooses  to  put 
upon  them.  Indeed  in  their  natural  state  they 
are  too  soft  to  maintain  long  the  impress  of  the 
<lie.  Accordingly,  for  coinage  purposes  they  are 
alloyed  with  another  metal,  chiefly  copper,  since 
by  a  chemical  law,  whenever  two  metals  are  mixed 
together,  the  compound  is  harder  than  either  of 
them  in  a  pure  state.  Most  of  the  nations  now 
use  in  their  gold  and  silver  coins  one-tenth  alloy, 
but  England  still  adheres  to  her  ancient  rule  of 
one-twelfth  only.  So  compounded,  coins  receive 
readily  and  retain  for  a  long  time  with  sharp  dis- 
tinctness the  legend  and  other  devices  chosen  for 
them  to  bear.  In  monarchical  countries,  the  head 
of  the  reigning  sovereign  is  usually  stamped  upon 
the  coins ;  and  there  was  a  curious  debate  in  the 
first  Congress  of  the  United  States,  whether  the 


MONEY.  263 

heads  of  the  successive  Presidents  should  not 
similarly  be  impressed  upon  the  coins  minted 
during  their  respective  administrations ;  but  this 
proposal  was  negatived,  as  was  also  a  motion  to 
substitute  the  head  of  Columbus,  and  an  emblem- 
atic figure  representing  Liberty  was  then  hit  upon 
and  has  been  since  continued. 

Quite  recently,  some  of  our  coins  have  been 
made  to  bear  the  appropriate  legend  "  In  God  we 
trust."  The  national  coat  of  arms  is  frequently 
impressed  upon  coins  in  the  various  countries,  by 
which  means  patriotic  associations  are  connected 
with  the  current  money.  Although  the  allp}  hard- 
ens the  coins,  yet  after  long  usage  they  will  lose  a 
part  of  their  weight  by  abrasion,  and  governments 
usually  indicate  a  short  weight,  after  coming  to 
which  the  coins  are  no  longer  legal-tender.  An 
English  sovereign  weighs  5  pennyweights  3jt|£ 
grains,  containing  H3g|^  grains  of  fine  gold,  and 
when  it  falls  below  5  pennyweights  2|  grains,  it 
loses  its  legal-tender  character.  There  is  an  Eng« 
lish  half  sovereign  in  gold;  five-  two-  and  one- 
Bhilling  pieces  in  silver ;  and  pence,  halfpence, 
and  farthings  in  bronze.  The  bronze  corns  are 
only  worth  about  one-fourth  of  their  nominal 
\  alue ;  and  pence  and  halfpence  are  only  legal- 
tender  to  the  amount  of  one  shilling,  and  far 
things  to  the  amount  of  sixpence.  One  English 
Bhilling  equals  24J  of  our  cents,  gold. 

Lastly,  gold  and  silver,  when  coined  into  money, 
are  objects  of  great  beauty.  This  is  no  slight 


264  POLITICAL  ECONOMY. 

recommendation  of  these  metals  for  the  money  of 
the  world.  They  are  clean.  They  are  beautiful. 
Their  perfectly  circular  form,  the  device  covering 
the  whole  piece,  the  milled  and  fluted  edges,  the 
patriotic  emblem  whatever  it  be,  the  religious  or 
other  legend,  and  their  bright  color,  are  all  ele- 
ments in  their  beauty.  The  educating  power  over 
the  young  of  a  good  coinage  well  kept  up,  aestheti- 
cally, historically,  and  commercially,  is  a  matter  of 
consequence  to  any  country.  A  whole  people  han- 
dling constantly  such  money  cannot  fail  to  receive 
a  wholesome  development  thereby.  The  new  Ger- 
man coinage,  in  contrast  with  the  old  money  of 
the  German  States,  furnishes  an  illustration  of  all 
this.  The  new  German  coins  from  highest  to  low- 
est are  very  beautiful,  and  have  already  tended, 
and  will  tend  more  and  more  to  a  true  German 
nationality. 

The  new  German  unit  is  the  mark,  equivalent 
to  23.821  of  our  cents,  gold.  The  principal  coin 
is  the  20-mark  piece,  containing  7.1684  grams 
of  fine  gold.  The  English  sovereign  contains 
7.3224  grams  fine,  the  French  25-franc  piece  con- 
tains 7.2581  grams  fine,  and  our  five-dollar  gold 
piece  contains  7.5230  grains  fine.  It  is  one  of 
the  great  problems  of  the  future  to  remove  in 
some  way  these  slight  differences,  and  thus  prac- 
tically to  unify  the  money  of  the  world.  The 
mark-system  is  decimal,  being  subdivided  into  gro- 
schen  and  pfennigs.  It  is  quite  like  our  dollars, 
dimes  and  cents,  although  each  of  these  denomina- 


MONEY.  265 

tions  is  rather  more  than  four  times  larger  than 
the  corresponding  German  ones.  For  the  present, 
until  the  old  silver  is  gotten  rid  of,  the  Prussian 
thaler  is  still  current,  passing  as  equivalent  to 
three  marks.  The  new  mark-system  is  a  skilful 
modification  of  the  old  Prussian  money,  while  at 
the  same  time  it  is  completely  decimal,  as  the  old 
system  was  not.  This  partial  national  continuity 
is  the  only  thing  that  goes  to  reconcile  one  to  the 
often  regretted  fact  that  the  new  German  mark 
was  not  made  equivalent  either  to  the  English 
shilling  or  to  the  French  franc. 

The  French  franc  and  its  multiples,  notwith- 
standing the  ugly  fraction  in  their  metric  weights, 
have  already  gained  great  triumphs  as  towards  a 
universal  money.  France  and  her  colonies,  Belgi- 
um, Switzerland,  Spain,  Italy,  Greece,  Roumania, 
and  Austro-Hungary  in  part,  have  now  a  common 
money  based  on  the  French  franc.  Austria  began 
in  1870  to  coin  gold  pieces  of  eight  and  four  flor- 
ins, the  same  in  weight  and  fineness  as  the  French 
20  and  10  franc  pieces ;  and  decreed  in  1873,  that 
foreign  gold  pieces  of  the  French  system  be  ac- 
cepted in  Austro-Hungary  in  the  ratio  of  2£  francs 
to  the  florin.  The  five-franc  gold  piece,  which  is 
the  unit  of  the  system  so  far  as  the  gold  coinage 
is  concerned,  weighs  1612.9  milligrams ;  the  mul- 
tiples of  this  unit  are  decimal,  or  at  least  divisible 
by  5  ;  and  while  the  coins  in  these  countries  bear 
the  emblems  preferred  by  each  they  are  legal 
tender  in  all. 


266  POLITICAL  ECONOMY. 

Our  gold  dollar  weighs  1671.8  milligrams,  and 
if  it  were  in  future  coining  to  be  reduced  so 
as  to  be  equal  to  five  francs,  American  gold 
would  thereafter  circulate  freely  wherever  the 
French  napoleon  (20  francs)  now  circulates,  and 
this  would  tend  powerfully  to  make  the  dollar 
as  a  denomination  the  future  universal  unit,  as  it 
is  already  the  unit  in  many  countries,  and  as  the 
French  have  no  simple  name  for  their  five-franc 
piece.  This  would  require  our  dollar  to  be  re- 
duced in  weight  3.5  per  centum.  Then,  if  the 
English  sovereign  were  lowered  0.88  per  cent  in 
weight  of  fine  gold,  the  following  very  simple 
ratios  would  obtain,  namely,  25  francs  —  $5  =<£!. 
Even  this  would  leave  the  German  mark  out  of 
harmony  with  the  rest,  but  as  the  Germans  have 
already  adopted  bodily  the  metric  system  from  the 
French,  it  is  not  too  much  to  hope  that  they  will  be 
willing  to  listen  by  and  by  to  some  modifications 
of  their  system  in  order  to  bring  it  in  some  way 
into  harmony  with  that  of  other  nations.  I  con- 
fess, that  to  my  mind  the  fairest  prospect  to  an  in- 
ternational and  universal  coinage  lies  through  the 
adoption  on  the  part  of  Great  Britain  and  the 
United  States  of  the  French  five-franc  unit,  to  be 
called  a  dollar  in  all  languages,  and  to  be  the  exact 
equivalent  of  4  English  shillings,  and  of  2  Aus- 
trian florins. 

Before  passing  to  discuss  paper-money  briefly,  I 
must  explain  what  is  coming  to  be  called  "  Gresh- 
am's  Law  of  Currency,"  from  Sir  Thomas  Gresh- 


MONEY.  267 

am,  A  financier  of  the  time  of  Queen  Elizabeth. 
Aristophanes,  the  Greek  comic  poet,  had  noticed 
even  in  his  early  day  that  good  coins  of  full 
weight  were  apt  to  be  crowded  out  of  the  circula- 
tion by  the  lighter  and  poorer  pieces,  and,  mistak- 
ing the  cause  of  this,  satirized  his  countrymen 
unmercifully  for  preferring  bad  coins  to  good,  and 
demagogues,  like  Cleon,  for  rulers,  to  honorable 
citizens.  The  following  are  the  verses :  — 

"  Oftentimes  have  we  reflected  on  a  similar  abuse, 

In  the  choice  of  men  for  office,  and  of  coins  for  common  use; 

For  your  old  and  standard  pieces,  valued  and  approved  and 
tried, 

Here  among  the  Grecian  nations,  and  in  all  the  world  be- 
side, 

Recognized  in  every  realm  for  trusty  stamp  and  pure  assay, 

Are  rejected  and  abandoned  for  the  trash  of  yesterday; 

For  a  vile,  adulterate  issue,  drossy,  counterfeit  and  base, 

Which  the  traffic  of  the  city  passes  current  in  their  place  I 

And  the  men  that  stood  for  office,  noted  foi  acknowledged 
worth, 

And  for  manly  deeds  of  honor,  and  for  honorable  birth; 

Trained  in  exercise  and  art,  in  sacred  dances  and  in  song, 

All  are  ousted  and  supplanted  by  a  base,  ignoble  throng; 

Paltry  stamp  and  vulgar  mettle  raise  them  to  command  and 
place, 

Brazen  counterfeit  pretenders,  scoundrels  of  a  scoundrel  race  ; 

Whom  the  state  in  former  ages  scarce  would  have  allowed 
to  stand 

At  the  sacrifice  of  outcasts,  as  the  scapegoats  of  the  land." 

Gresham  was   the  first  to   explain  fully  what 
Aristophanes  had  noticed  and  falsely  referred  to 


268  POLITICAL  ECONOMY. 

the  had  taste  of  his  generation.  It  is  true  always 
and  everywhere  that  an  inferior  money,  so  long  as 
it  circulates  at  all,  drives  a  superior  money  out  of  the 
circulation  ;  and  this  is  rather  creditable  to  human 
nature  than  otherwise,  when  the  true  ground  of  it 
is  perceived.  In  most  spheres,  what  is  excellent 
tends  to  displace  what  is  inferior,  but  in  the 
sphere  of  money  the  exact  reverse  takes  place, 
and  bad  money  drives  out  the  good,  for  the  simple 
reason  that  money  is  an  instrument  of  exchange, 
and  nobody  wants  it  except  to  buy  with,  and  sc 
long  as  the  government  and  the  community  treat 
light  coin  and  full  coin  as  of  equal  value  in  cur- 
rent exchanges,  receiving  them  indifferently  in 
payment  of  debts  and  of  taxes,  it  is  clear  that  few 
persons  will  give  in  payment  of  debts  and  of  taxes 
what  is  really  and  elsewhere  worth  more  so  long 
as  what  is  really  and  elsewhere  worth  less  will  go 
just  as  far.  The  inferior  pieces  will  abide  in 
a  market  where  ihey  will  fetch  just  as  much  as 
the  superior  pieces,  while  the  superior  pieces  will 
take  on  a  form  or  migrate  to  a  place  in  which  some 
advantage  can  be  gained  from  their  superiority. 
Thrown  into  a  crucible,  or  exported  in  commerce, 
this  superiority  immediately  manifests  itself;  and 
therefore  into  the  crucible  or  into  the  channels  of 
foreign  trade  it  might  be  predicted  that  such  money 
would  be  thrown,  and  all  experience  testifies  with 
one  voice  that  into  exports,  melting-pots,  or  private 
hoards,  such  money  always  goes. 

This  principle  is  now  called  Gresham's  Law,  and 


MONEY.  269 

/ 

it  applies  equally  to  purely  metallic  currencies  and 
to  currencies  mixed  of  coin  and  paper.  The  city 
of  Amsterdam  founded  its  famous  bank  in  1609, 
because  the  clipped  and  worn  foreign  coins  circu- 
lating in  that  then  great  mart  of  trade  drove  out 
the  good  money  which  the  mint  of  the  city  con- 
stantly poured  in.  There  was  no  paper-money  in 
Amsterdam  before  or  afterwards ;  the  bank  became 
a  bank  of  deposit  merely ;  it  took  in  all  the  old 
coins  at  their  intrinsic  value,  and  had  them  re- 
minted  at  full  weight ;  gave  depositors  a  credit  on 
its  books  for  all  they  brought ;  adjusted  accounts 
between  merchants  and  others  by  mere  transfers  on 
its  books ;  and  thus  took  away  all  uncertainty  from 
bills  of  exchange  drawn  on  parties  in  Amsterdam, 
which  had  been  before  at  some  ten  per  cent  dis- 
count, bringing  them  up  at  once  to  par,  and  thus 
making  it  for  the  interest  and  convenience  of  every 
business  man  in  Amsterdam  to  have  these  simple 
dealings  with  the  Bank,  which  in  turn  enjoyed 
unlimited  credit  in  the  commercial  world  for  nearly 
200  years. 

The  great  English  re-coinage  of  1696  was  com- 
pelled by  similar  causes ;  the  previous  working  of 
Gresham's  Law  as  between  the  old  silver  and  the 
new  —  the  worn  stamped  money  and  the  fresh 
milled  money  —  caused  great  confusion  in  busi- 
ness, great  bitterness  in  society,  and  great  hopes 
among  the  Jacobites  that  they  would  be  able  by 
means  of  the  prevailing  discontent  to  overthrow 
the  yet  scarcely  established  revolutionary  govern- 


270  POLITICAL  ECONOMY. 

ment  of  William  and  Mary.1  Thus  we  see  that 
there  may  be  depreciation  even  among  coins.  De- 
preciation implies  of  course  a  standard  ;  and  what- 
ever any  coins  are  worth  less  than  the  standard 
coins  of  that  kind  is  their  depreciation.  But 
Gresham's  Law  has  its  most  marked  operation  in 
mixed  currencies,  and  the  word  "  depreciation  "  is 
commonly  used  of  paper-money  to  express  its  lack 
of  equality  in  value  with  gold  coin.  This  brings 
us  to  the  subject  of  paper-money. 
•  I  lay  down  this  proposition  :  —  A  paper-money 
is  only  tolerable  when  it  is  instantly  convertible  into 
gold  or  silver.  This  proposition  rests  back  for  its 
proof  upon  the  nature  of  paper-money.  Paper- 
money  is  a  promise  to  pay  a  certain  quantity  of  gold 
or  silver.  For  example,  in  this  country  a  five- 
dollar  bill  is  a  promise  to  pay  five  times  25  i  grains 
of  standard  gold.  No  other  meaning  than  this  is 
possible,  since  the  bill  does  not  read,  This  is  five 
dollars,  but,  The  United  States  will  pay  to  bearer 
five  dollars ;  and  when  we  go  to  the  statutes  to 
find  out  what  a  dollar  is,  we  ascertain  that  the 
United  States  have  said  that  a  dollar  is  25 1  grains 
of  standard  gold.  It  is,  indeed,  true  that  in 
1878  Congress  enacted  that  412£  grains  of  silver 
coined  nine-tenths  fine  should  also  be  a  dollar: 
but  at  present  these  coins  are  not  meant  in  the 
minds  of  men  when  they  give  and  take  promises 
to  pay  dollars  ;  they  are  stowed  away  by  the  mil- 
lion in  the  sub-treasuries  of  the  United  States,  and 
silver  certificates,  so-called,  are  issued  to  all  de- 

1  Macaulay's  History  of  England,  chap.  21. 


MONEY.  271 

positors  of  them  ;  so  late  as  the  autumn  of  1880, 
they  had  come  very  little  into  general  circulation : 
and  consequently  the  name  dollar  still  attaches 
itself  to  the  25|  grains  of  gold,  and  not  at  all  to 
the  41 2|  grains  of  silver,  although  both  are  alike 
legal-tender  for  all  debts  public  and  private.  If, 
however,  what  are  technically  called  "the  ex- 
changes" (and  these  will  be  fully  explained  in 
the  next  chapter)  should  turn  strongly  against 
this  country,  and  silver  continue  in  the  markets 
of  the  world  to  be  cheaper  than  gold  in  the  ratio 
1  :  16,  and  gold  accordingly  be  drawn  off  in  con- 
siderable foreign  payments,  in  this  case  the  silver 
dollar  is  likely  enough  to  become  the  current  dol- 
lar, and  thus  also  the  standard  dollar ;  and  as  a 
result  of  this  the  denomination-dollar  would  shift 
at  once  to  the  silver,  and  thereafter  represent  the 
value  of  that,  and  not  the  higher  value  of  the 
gold.  Then,  in  accordance  with  Gresham's  law, 
the  silver  would  expel  the  gold  altogether  from 
the  circulation,  and  the  country  would  have  in 
effect  the  single  (silver)  standard,  and  also  a 
cheap  dollar  in  which  all  promises  to  pay  would 
be  met. 

In  all  cases,  therefore,  the  nature  of  paper 
money  is  perfectly  clear :  it  is  a  mere  promise  to 
pay  so  much  gold  or  silver.  In  all  the  leading 
nations  of  the  world,  it  is  a  promise  to  pay  gold. 
Now,  if  the  promise  be  kept,  if  the  gold  be  forth- 
coming on  presentation  for  payment,  then  paper- 
money  is  tolerable,  its  value  is  equal  to  that  of 


272  POLITICAL  ECONOMY. 

the  gold  promised,  because  it  brings  out  the  gold 
promised ;  but  if  the  promise  be  not  kept,  if  the 
gold  be  refused,  then  the  paper-money  is  dishon- 
ored, it  becomes  intolerable,  it  depreciates  as  com- 
pared with  the  gold  promised  but  not  paid ;  and  if 
it  have  a  forced  circulation,  that  is,  if  govern- 
ment compels  creditors  to  receive  it  in  payment 
of  debts,  a  fearful  injustice  is  done,  creditors  are 
cheated,  the  measure  of  value  becomes  variable 
as  the  wind,  and  irreparable  mischiefs  to  business 
and  credit  follow  as  a  matter  of  course. 

Paper-money  is  issued  either  by  governments 
directly,  or  by  corporations  instituted  by  govern- 
ments. The  nature  of  paper-money  is  essentially 
the  same  in  whichever  way  it  is  issued ;  in  the 
one  case,  it  is  the  promise  to  pay  of  the  govern- 
ment itself,  good  if  kept  and  bad  if  broken,  and 
in  the  other  case,  it  is  the  promise  to  pay  of 
organized  bodies  deriving  their  authority  to  act 
from  the  government,  and  the  government  itself 
usually  feels  responsible  more  or  le^s  for  the  way 
in  which  they  act.  Those  banks  which  issue 
paper-money  are  usually  so  connected  with  the 
government  in  one  way  or  another,  that  their  cir- 
culating notes  have  a  kind  of  government  indorse- 
ment or  guaranty.  We  will  consider  as  specimens 
of  such  banks,  the  Bank  of  England,  and  the 
present  national  banks  of  the  United  States,  look- 
ing at  them  now  solely  as  corporations  issuing 
paper-money.  In  the  next  chapter,  we  shall  look 
at  banks  generally  as  institutions  of  Credit. 


MONET.  273 

The  Bank  of  England  is  the  child  of  the  Eng- 
lish Revolution  of  1688.  It  was  incorporated  by 
Parliament  in  1694,  in  the  midst  of  the  struggle 
under  Gresham's  Law  between  the  old  coinage 
and  the  new,  on  condition  that  its  stockholders 
should  loan  to  government,  then  pressed  for  funds, 
the  sum  of  <£  1,200,000,  on  which  they  were  prom- 
ised 8  per  cent  as  interest,  and  £4,000  for  man- 
agement, per  annum.  On  the  strength  of  this 
capital  stock,  which  was  all  invested  in  the  gov- 
ernment debt,  the  bank  was  allowed  by  law  to 
issue  an  exactly  equal  amount  of  circulating  notes, 
which  at  first  however  could  only  pass  from  hand 
to  hand  by  successive  indorsements.  On  several 
subsequent  occasions,  its  capital  stock  was  in- 
creased, that  is,  the  stock-holders  of  the  bank 
advanced  more  money  to  government,  and  each 
time  the  bank  was  allowed  to  issue  an  equal 
amount  of  notes  additional ;  and  it  was  provided 
that  if  the  Directors  issued  notes  exceeding  the 
amount  of  their  capital  they  should  be  liable  in 
their  private,  capacity.  Afterwards  they  were 
leleased  from  this  limitation,  and  were  allowed  to 
issue  as  many  notes  as  they  pleased,  provided 
always  they  redeemed  them  in  specie  on  demand. 

In  about  two  years  from  its  establishment,  the 
bank  fell  into  difficulties  from  having  received  the 
old  coin  and  being  obliged  to  pay  out  the  new  ;  its 
enemies  made  a  run  upon  it,  and  it  was  obliged  to 
suspend  payments;  and  in  February,  1697,  the 
notes  were  24  per  cent  below  par.  Just  then,  came 


274  POLITICAL  ECONOMY. 

the  first  parliamentary  act  increasing  the  capital 
stock,  one-fifth  of  which  increase  was  receivable 
in  bank-notes,  which  brought  them  up  to  par.  In 
1709,  the  capital  was  again  increased,  and  the 
interest  on  the  whole  debt  reduced  from  8  per  cent 
to  6.  In  1711,  the  limitation  on  the  amount  of 
issues  was  removed ;  and  in  1716,  the  bank  was 
exempted  from  the  operation  of  all  usury  laws : 
why  the  bank  only,  and  not  other  people  as  well, 
the  Act  of  parliament  does  not  state. 

In  1720,  and  again  in  1745,  when  the  Young  Pre- 
tender made  the  last  rally  of  the  Jacobites,  there 
were  severe  runs  upon  the  bank ;  on  both  occasions, 
in  order  to  gain  time,  notes  were  paid  in  shillings 
and  sixpences,  and  best  friends  were  said  to  be  ac- 
commodated first,  who  returned  the  bags  of  morey 
as  fast  as  they  received  them.  In  1759,  X15  and 
<£10  notes  were  first  issued,  no  previous  note  hav- 
ing been  for  less  than  .£20.  In  1782,  the  debt  of 
the  government  to  the  bank  stood  at  £11,642,000, 
most  of  which  bore  but  3  per  cent  interest.  Dur- 
ing the  following  great  war  with  the  French,  the 
constant  demands  of  the  government  for  money 
could  not  be  met,  and  the  bank  continue  to  give 
its  usual  accommodations  to  merchants,  and  con- 
sequently private  credit  wavered  and  there  was  a 
run  upon  the  bank  for  cash,  under  which  the  bank 
suspended  payments  in  February,  1797,  and  did 
not  resume  them  till  May,  1821. 

During  this  long  suspension,  government  and 
the  business  men  of  London  did  their  best  to  hold 


MONEY.  275 

up  the  credit  of  the  dishonored  notes,  7nit  they  were 
not  made  a  legal-tender  for  debts.  Government 
received  them  at  par  for  taxes,  and  provided  that 
business  payments  in  notes  should  be  held  as  pay- 
ments in  cash,  if  offered  and  accepted  as  such; 
debtors,  having  tendered  bank-notes,  which  the 
creditor  refused,  had  certain  privileges  before  the 
law,  which  other  debtors  had  not ;  and  the  notes, 
accordingly,  had  a  certain  legal  recognition,  but 
not  a  forced  circulation.  At  this  time  also,  the 
bank  was  first  authorized  to  issue  .£5,  <£2,  and  XI 
notes;  and  all  its  notes,  being  cautiously  issued 
for  some  time,  were  kept  quite  or  nearly  to  par  in 
gold,  which  proves  that  under  favorable  circum- 
stances an  inconvertible  paper  can  be  kept  at  par 
by  sufficiently  limiting  its  quantity  ;  while  the 
same  example  proves  a  little  further  on  what  a 
bad  money  inconvertible  paper  is,  inasmuch  as,  all 
restrictions  being  now  removed  and  small  notes 
authorized,  the  bank  gradually  expanded  its  cir- 
culation, and  so  stimulated  speculation,  until  in 
August,  1813,  its  notes  were  at  30  per  cent  dis- 
count in  gold.  In  the  following  years,  the  in- 
evitable crisis  occurred,  a  very  large  number  of 
country  bankers  failed,  the  volume  of  paper- 
money  decreased  about  one-half,  and  the  notes  of 
the  Bank  of  England  rose  nearly  to  par  in  October, 
1816.  They  declined  again,  however,  after  a 
partial  attempt  at  resumption,  and  then  gradually 
rose  till  the  complete  resumption  began  in  1821. 
In  1829,  all  notes  whatsoever  for  less  than  £5 
were  forbidden  to  be  circulated  in  England. 


276  POLITICAL  ECONOMY. 

In  18ii3  when  the  bank  charter  was  renewed  for 
the  ninth  time,  the  bills  of  the  Bank  of  England 
were  declared  to  be  a  legal-tender  for  debts,  so 
long  as  the  lank  paid  them  on  demand  in  legal  coin, 
but  no  longer.  In  1844,  Sir  Robert  Peel  caused  to 
pass  Parliament  an  Act  under  which  the  Bank  of 
England  is  still  administered,  and  under  which 
the  bank  is  divided  into  two  distinct  departments, 
the  Issue  department  and  the  Banking  depart- 
ment. The  Issue  department  is  the  only  one  we 
have  any  thing  to  do  with  now,  and  its  operations 
are  entirely  simple,  almost  self-acting. 

Under  the  law,  the  Directors  of  the  bank  have 
transferred  to  the  Issue  department  £  15,000, 000 
of  securities,  most  of  which  is  the  debt  of  the  gov- 
ernment to  the  bank,  and  also  gold  coin  and  gold 
and  silver  bullion  in  varying  amounts  according  to 
their  discretion  but  averaging  about  .£15,000,000. 
The  Issue  department  is  authorized  to  give  over  to 
the  Banking  department  notes  to  the  exact  amount 
of  the  securities,  coin  and  bullion  thus  deposited. 
The  Banking  department  can  get  notes  only  from 
the  Issue  department,  and  the  Issue  department 
can  issue  notes  only  to  the  Banking  department, 
and  only  to  the  amount  of  the  coin  and  bullion 
actually  on  hand  in  the  Issue  department  plus  the 
value  of  the  securities  already  described.  Conse- 
quently, the  total  power  of  the  Bank  of  England 
to  issue  notes  is  limited  to  the  sum  of  these  two 
simple  elements.  Of  course,  the  Banking  depart- 
ment holds  coin  and  bullion  also  for  its  banking 


MONEY.  277 

purposes,  and  can  get  more  notes  at  any  time  by 
transferring  parts  of  these  to  the  Issue  depart- 
ment ;  but  the  law  prescribes  that  silver  bullion 
shall  only  be  held  by  the  Issue  department  to  the 
extent  of  one-fourth  of  the  gold  coin  and  bullion 
held  by  it  at  any  one  time.  This  whole  legisla- 
tion has  made  the  notes  of  the  Bank  of  England 
a  very  safe  medium  of  exchange.  Since  May, 
1821,  no  note  has  been  presented  for  payment, 
which  has  not  been  immediately  cashed. 

Still,  the  system  is  not  perfect.  In  October, 
1847,  during  a  severe  commercial  crisis,  govern- 
ment authorized  the  bank  to  violate  its  charter, 
and  to  issue  notes  at  its  discretion.  This  extraor- 
dinary authority  quieted  the  panic  in  ten  minutes, 
and  no  more  notes  were  actually  issued  than  the 
previous  legal  limits  allowed.  Again  in  Novem- 
ber, 1857,  in  the  next  great  crisis,  the  Banking 
department  fell  into  difficulties,  and  could  not 
have  continued  to  discount  another  day,  when 
government  suspended  the  law  a  second  time,  and 
bade  the  bank  issue  notes  at  discretion,  but  not  to 
discount  for  less  than  10  per  cent.  This  permis- 
sion worked  as  before,  the  panic  vanished,  arid 
the  legal  limits  did  not  need  to  be  exceeded. 
Again  in  1866,  there  was  a  very  severe  crisis,  and 
on  the  10th  of  May  there  was  a  general  run  on  all 
the  London  banks,  and  it  is  said  that  one  bank 
alone  paid  out  .£2,000,000  in  six  hours,  and  after 
banking  hours  that  day  it  became  known  that  the 
house  of  Overend,  Gurney  &  Co.  had  suspended 


278  POLITICAL  ECONOMY. 

with  liabilities  of  over  £10,000,000  — the  largest 
failure  that  had  ever  taken  place  in  London  — 
and  that  evening  the  government  sent  word  to 
the  bank  to  issue  notes  in  discounting  at  its  own 
discretion  at  not  less  than  10  per  cent.  The  bank 
advanced  in  this  way  £12,255,000  in  five  days, 
one  million  pounds  of  which  was  to  our  country- 
man, treorge  Peabody,  which  saved  him  from 
otherwise  inevitable  failure,  and  his  gigantic  for- 
tune to  the  benevolent  and  patriotic  purposes  to 
which  it  was  afterwards  put. 

It  may  well  be  questioned  whether  a  funda- 
mental restriction,  which  has  to  be  removed  on 
every  occasion  of  extraordinary  pressure,  ought 
not  the  rather  to  be  abolished  ;  and,  if  so,  whether 
the  division  of  the  bank  into  two  departments  is 
of  any  further  practical  use,  and  whether  the 
directors  may  not  now  be  safely  trusted  to  govern 
the  issue  of  their  notes  as  they  govern  the  amount 
and  rate  of  their  discounts  at  their  own  discretior 
It  may  also  be  gravely  questioned  whether  Eng 
land  is  any  better  off,  or  ever  has  been,  for  the 
issue  of  Bank  of  England  notes  to  circulate  as 
money.  As  a  banking  institution  its  merits  and 
benefits  are  freely  conceded,  but  it  may  reason- 
ably be  doubted  whether  as  an  institution  for 
circulating  paper-money  it  has  ever  added  any 
thing  to  the  prosperity  of  England. 

The  amount  of  Bank  of  England  notes  in  circu- 
lation is  about  £30,000,000,  one-half  on  the  basis 
of  securities,  and  one-half  on  the  basis  of  coin  and 


MONEY.  279 

bullion.  Abcut  <£!  5,000,000  of  other  bank-notes 
are  in  circulation  in  England,  making  £  45,000,000 
in  all ;  while  at  the  same  time,  there  are  about 
.£115,000,000  of  gold  and  silver  coin  in  circula- 
tion there.  The  ratio  of  coin  to  paper  is  nearly 
2|  to  1.  Very  nearly  the  same  ratio  prevails  in 
France.  If  there  were  no  paper-money  at  all  in 
either  country,  the  system  of  checks,  which  is 
thoroughly  established  in  England  but  less  so  in 
France,  would  obviate  for  the  most  part  all  bur- 
densome transfers  of  coin. 

The  present  national  banks  of  this  country  are 
a  second  illustration  of  institutions  chartered  by 
government  issuing  a  paper-money.  These  banks 
are  organized  under  a  law  of  Congress  approved 
in  February,  1863.  They  invest  their  capital  stock 
in  the  bonds  of  the  United  States,  which  are  depos- 
ited with  an  officer  in  Washington  called  the 
Comptroller  of  the  Currency,  who  holds  them  as 
security  that  the  banks  redeem  their  notes  and 
otherwise  obey  the  provisions  of  the  organic 
banking-law,  but  pays  the  interest  on  them  to  the 
banks  so  long  as  these  conditions  are  fulfilled. 
Ninety  per  cent  of  the  amount  of  such  bonds  thus 
deposited  with  the  Comptroller  is  then  furnished  to 
the  bank  in  circulating  notes  engraved  and  regis- 
tered by  the  United  States,  unless  the  capital  of 
the  bank  be  over  $500,000  and  under  $1,000,000, 
in  which  case  only  80  per  cent  is  furnished  in 
notes;  and  if  the  capital  be  between  $1,000,000 
and  $3,000,000,  only  75  per  cent  of  it  is  returned 


280  POLITICAL  ECONOMY. 

"in  notes;  and  if  the  capital  be  over  13,000,000, 
only  60  per  cent ;  but  by  the  law  of  1870,  no  new 
bank  can  be  organized  to  issue  more  than  $500,000 
of  notes,  no  matter  what  the  capital  stock  may  be. 
All  the  banks  are  required  to  keep  5  per  cent  of 
their  circulation  in  lawful  money  with  the  Comp- 
troller at  Washington  for  the  purpose  of  redeem- 
ing their  notes  on  presentation  there ;  and  in 
seventeen  of  the  principal  cities  of  the  Union,  the 
banks  are  required  to  keep  25  per  cent  of  their 
average  deposits  in  lawful  money  as  a  reserve,  and 
in  all  other  places  15  per  cent,  with  which  to 
meet  their  various  obligations  over  their  own 
counters. 

By  the  law  of  1875,  all  restrictions  on  the  aggre- 
gate circulation  of  the  national  banks  are  removed, 
but  provision  is  made  to  retire  80  per  cent  of  the 
amo  Jit  of  notes  issued  thereafter  to  new  banks, 
or  old  banks  increasing  their  circulation,  in  the 
other  paper-money  of  the  country,  namely,  in  the 
greenbacks  so-called,  until  these  be  reduced  to 
8300,000,000.  When  this  law  was  passed,  January 
14,  1875,  there  were  in  circulation  of  national 
bank-notes  $351,861,450,  and  of  greenbacks  $382,- 
000,000 ;  under  the  operation  of  this  law,  and  of 
other  causes,  the  bank-notes  outstanding,  and  the 
greenbacks  too  lessened  in  volume,  —  the  average 
sum  of  the  two  having  been  about  $700,000,000 
for  several  years. 

The  banks  can  curtail  their  circulation  at  will, 
and  recall  their  bonds  from  Washington;  —  and 


MONEY.  281 

they  can  recover  and  increase  their  circulation  at 
will  by  pledging  more  bonds  again.  Under  this 
system,  it  is  scarcely  possible  that  any  note-holder 
can  suffer  any  loss,  though  depositors  may,  for  the 
United  States  undertakes  to  redeem  all  notes,  at 
first  from  the  5  per  cent  reserve  in  their  hands,  and 
then,  if  necessary,  by  selling  the  bonds  in  their 
keeping.  A  few  banks  have  failed,  a  few  more 
have  wound  up  their  affairs  as  national  banks, 
and  about  2,100  are  now  in  operation  all  over  the 
country.  Prior  to  the  resumption  of*  specie  pay- 
ments in  1879,  these  bank-notes  were  redeemable 
in  "  lawful  money,"  that  is,  in  irredeemable  green- 
backs ;  but  since  then,  the  greenbacks  themselves 
having  become  redeemable  in  gold  or  silver,  all 
the  paper-money  of  the  country  may  be  said  to  be 
redeemable.  It  would  certainly  be  simpler  if  there 
were  but  one  kind  of  it,  and  it  probably  would 
be  better  if  there  were  none  of  it.  The  various 
expedients  of  pure  credit  to  be  described  in  the 
next  chapter  would  seem  to  obviate  any  need  of 
any  form  of  paper-raowe^.  But,  whatever  may  be 
thought  about  that,  the  amount  of  paper-money  in 
our  system  is  excessive  relatively  to  the  amount 
of  coin  in  the  hands  of  the  people.  The  amount 
of  paper-money  per  head  of  population  is  just 
about  double  that  in  England,  say  $14  to  $7.  So 
far  as  our  system  of  national  banks  creates  money ^ 
I  'lave  never  seen  any  thing  that  leads  me  to  think 
that  it  has  added,  or  is  likely  to  add,  any  thing  to 
the  property  cr  happiness  of  the  people  of  the 


282  POLITICAL  ECONOMY. 

United  States.  In  many  other  respects  the  system 
is  admirable,  and  its  author  was  the  late  Secretary 
of  the  Treasury,  and  Chief  Justice  of  the  United 
States,  Salmon  P.  Chase,  who  borrowed  the  out- 
lines and  some  of  the  details  of  the  scheme,  how- 
ever, from  the  State  bank  system  of  New  York. 

I  will  illustrate  the  other  kind  of  paper-money, 
that,  namely,  issued  directly  by  governments,  by 
giving  some  account  of  the  present  greenback 
money  of  the  United  States.  This  will  serve  as  a 
sample.  Many  governments,  particularly  revolu- 
tionary governments,  have  issued  directly  an  irre- 
deemable paper-money ;  and  the  assignats  of  revo- 
lutionary France,  and  the  continental  money  of 
these  American  states  one  hundred  years  ago,  will 
occur  to  many  minds  as  examples.  Those  were 
never  redeemed  at  all ;  and,  I  believe,  there  has 
never  been  in  the  world  an  example  of  the  com- 
plete liquidation  of  such  money  by  any  nation. 
The  first  batch  of  this  money,  consisting  of  $150,- 
000,000,  was  issued  almost  immediately  under  a 
law  of  Congress  approved  Feb.  25,  1862.  These 
notes  of  the  United  States,  made  nominally  payable 
to  bearer  but  at  no  specified  place  or  date,  and  not 
on  interest,  were  made  legal-tender  for  all  debts 
public  and  private,  except  customs-duties  and  in- 
terest on  the  coin-bonds  of  the  United  States.  It 
was  also  expressly  stipulated  in  the  law  that  these 
notes  might  be  funded  in  sums  of  fifty  dollars,  or 
multiples  thereof,  in  the  six  per  cent  bonds  of  the 
United  States. 


MONEY.  283 

In  less  than  a  month  after  the  passage  of  the 
first  legal-tender  act  another  act  was  passed  at  tho 
request  of  Secretary  Chase,  approved  March  17, 
1862,  declaring  $60,000,000  more  of  demand  notes 
previously  authorized  but  not  made  legal-tender  to 
he  legal-tender  in  like  manner,  and  for  the  same 
purposes,  and  to  the  same  extent,  as  the  first  notes. 
July  11,  1862,  the  President  approved  another  law 
authorizing  the  issue  of  $150,000,000  more  of  just 
such  legal-tender  notes,  fundable  as  before  in  six 
per  cent  bonds,  and  $35,000,000  of  these  notes 
might  be  of  denominations  less  than  $5,  but  not 
fractional  parts  of  $1.  January  17, 1863,  the  Presi- 
dent approved  of  a  joint  resolution  of  both  houses 
of  Congress  authorizing  $100,000,000  more  of  legal- 
tenders  to  pay  soldiers  and  sailors,  but  in  doing  so, 
he  uttered  a  solemn  protest  against  the  policy  of 
thus  inflating  the  currency  by  forced  means,  which, 
he  said,  "  has  already  become  so  redundant  as  to 
increase  prices  beyond  real  values,  thereby  aug- 
menting the  cost  of  living  to  the  injury  of  labor, 
and  the  cost  of  supplies  to  the  injury  of  the  whole 
country." 

March  3,  1863,  a  very  comprehensive  act  was 
approved,  authorizing  loans  to  the  extent  of  $900,- 
000,000,  authorizing  also  $50,000,000  of  fractional 
currency  redeemable  in  sums  not  less  than  $3  in 
legal-tenders  and  receivable  for  all  dues  to  the 
United  States  less  than  $5,  except  duties  on  im- 
ports, and  taking  away  also  after  July  1,  1863,  the 
riyht  to  fund  legal-tenders  into  six  per  cent  bonds  at 


284  POLITICAL  ECONOMY. 

par,  although  on  the  back  of  some  of  these  legal- 
tenders  was  printed  this  statement :  "  This  note  is 
a  legal-tender  for  all  debts,  public  and  private, 
except  duties  on  imports  and  interest  on  the  pub- 
lic debt,  and  is  exchangeable  for  U.  S.  six  per  cent 
bonds,  redeemable  at  the  pleasure  of  the  United 
States  after  five  years" 

It  was  a  great  breach  of  the  public  faith  to  take 
away  in  this  indirect  manner,  or  in  any  manner, 
from  the  people  the  right  to  fund  notes  into  bonds, 
after  it  had  been  twice  guaranteed  in  the  laws 
authorizing  the  issue  of  the  notes,  and  after  the 
people  had  been  compelled  to  take  the  notes,  and 
this  accounts  in  part  for  the  great  subsequent  de- 
preciation of  the  notes,  the  excess  of  which  could 
not,  as  was  originally  intended,  be  drawn  easily 
into  the  funded  debt.  By  the  act  of  June  30, 1864, 
it  was  provided  that  "  the  total  amount  of  United 
/Slates  notes  issued,  or  to  be  issued,  shall  not  exceed 
$400,000,000,  and  such  additional  sum  not  exceeding 
850,000,000,  as  may  be  temporarily  required  for  the 
redemption  of  temporary  loans"  On  the  31st  Octo- 
ber, 1865,  there  were  outstanding  $454,218,038.20 
of  United  States  notes  and  fractional  currency.1 

While  the  greenbacks  were  still  depreciating  on 
the  whole,  creditors  were  constantly  cheated  by 
being  compelled  to  receive  less  value  than  they  had 
contracted  for ;  and,  after  they  had  begun  to  ap- 
preciate on  the  wKole,  debtors  were  compelled  to 
pay  more  value  than  they  contracted  for.  Failures 

See  Hoo.  E.  G.  Spaulding's  "  Financial  History  of  the  War." 


MONEY.  285 

have  been  a  consequence.  Discontent  has  been  -a 
consequence.  Fallacious  theories  of  money  have 
been  a  consequence.  A  wounded  public  credit 
has  been  a  consequence.  At  times,  rash  specula- 
tion has  been  a  consequence.  At  other  times, 
long-continued  depression  has  been  a  consequence. 
Great  injustice  as  between  classes  of  men  has  been 
a  consequence.  A  universal  financial  uncertainty 
has  been  one  of  the  worst  consequences.  Ac- 
knowledged difficulties  in  the  way  of  a  return  to 
a  better  system  have  been  another  consequence. 
Paper-money  in  its  best  estate,  that  is,  when 
certainly  convertible  into  gold  on  demand,  is  a 
questionable  good;  but  paper-money  like  the 
greenbacks,  inconvertible,  variable  in  value,  redun- 
dant in  volume,  and  having  a  forced  circulation, 
is  an  unmitigated  evil,  whose  power  for  mischief 
is  indefinite  and  interminable. 

How  shall  we  get  back  to  specie  payments? 
By  restoring  the  fundable  feature  of  the  laws  of 
1862  removed  in  1863,  and  by  appointing  a  day  in 
advance  after  which  the  legal-tender  clause  shall  be 
inoperative  and  void.  If  the  people  of  the  United 
States  knew  certainly  that  after  the  1st  day  of 
January,  1879,  a  day  already  legally  appointed  for 
resuming  specie  payments,  no  paper  whatever 
would  be  legal-tender  for  debts ;  and  if  they  were 
allowed  from  now  on  to  fund  greenbacks  freely 
into  the  4  per  centum  long  bonds  already  author- 
ized, whose  interest  is  too  low  to  prove  over- 
attractive  to  the  circulating  medium,  and  thus  too 


286  POLITICAL  ECONOMY. 

rapidly  deplete  it ;  I  believe  that  no  other  legisla- 
tion is  needed,  unless  it  might  be  to  require  the 
national  banks  to  retain  as  reserve  the  gold  inter- 
est on  their  bonds,  to  bring  the  country  back, 
doubtless  not  without  something  of  shock  and 
disaster,  to  the  good  ground  occupied  between 
1836  and  1862,  the  ground,  namely,  of  a  purely 
metallic  money,  or  bank  paper  instantly  converti- 
ble into  that.  Between  those  dates,  the  national 
government  neither  received  for  its  dues  nor  paid 
out  for  its  debts  any  thing  but  gold  and  silver 
coin.  It  should  resume  that  position.  And  it 
would  be  much  better  in  my  judgment,  if  the  feature 
of  circulation  were  eliminated  from  the  national 
bank  system,'  and  those  institutions  were  restricted 
to  a  purely  banking  business,  that  is  to  say,  to 
dealings  in  credits  of  all  sorts  except  credit-money. 
If  that  be  too  great  a  good  to  be  hoped  for,  the 
patriotic  citizen  may  at  least  indulge  the  hope 
that  those  banks  may  be  so  managed  and  con- 
trolled as  never  to  issue  any  thing  but  a  strictly 
convertible  money. 

As  money  is  always  a  thing  of  value,  and  as  -it 
is  the  inmost  nature  of  a  thing  as  valuable  that  its 
owner  is  at  liberty  to  part  with  it  on  his  own 
terms,  whoever  owns  money  has  an  indubitable 
right  to  loan  it  to  others  at  any  rate  of  interest 
they  may  be  willing  to  pay  him.  What  are  called 
Usury  Laws,  therefore,  that  is,  laws  of  the  State 
or  the  Nation  forbidding  persons  to  take  more 
than  a  prescribed  rate  of  interest  on  money  loaned, 


MONEY.  287 

are  wholly  out  of  character,  and  are  now  disap- 
pearing. Massachusetts,  Connecticut,  arid  Rhode 
Island  have  abolished  their  usury  laws;  and,  as 
the  national  banking  law  enacts  that  she  banks 
may  legally  take  the  interest  allowed  in  their 
respective  States,  all  limitations  are  removed  in 
these  three  States.  No  evil  of  any  kind  has  fol- 
lowed their  abolition.  Even  in  the  States  in 
•which  usury  laws  are  still  nominally  kept  up,  they 
are  notoriously  disregarded.  It  is  a  queer  distinc- 
tion, when  governments  allow  their  citizens  to 
make  all  other  bargains  and  exchanges  freely  at 
their  own  discretion,  and  then  forbid  them  to  loan 
money  at  the  market  rates. 

Governments  are  careful  not  to  bind  themselves 
in  this  manner,  and  of  course  they  ought  not  to 
attempt  to  bind  their  citizens,  because  it  is  useless 
to  attempt  it,  because  there  is  no  reason  why  they 
should  succeed  in  it,  and  because,  even  if  they 
could  succeed  in  it,  it  would  be  worse  for  all  par- 
ties concerned.  Our  government  paid  twelve  per 
cent  on  a  public  loan  in  1860,  and  could  get  but 
little  at  that,  because  its  credit  was  then  wealj ; 
which  shows  the  absurdity  of  its  forbidding  a  citi- 
zen to  pay  over  seven,  no  matter  how  weak  hia 
credit  or  great  his  necessity.  Such  laws  are  inju- 
rious to  the  public  conscience  so  far  as  they  are 
disobeyed,  injurious  to  persons  of  weak  credit  so 
far  as  they  are  obeyed,  and  injurious  to  the  rights 
of  capital  Avhether  obeyed  or  disobeyed.  Let  them 
be  abolished. 


288  POLITICAL  ECONOMY. 

In  conclusion,  we  will  give  a  summary  of  the 
principal  points  in  this  chapter. 

1.  From  the  very  nature  of  value,  which  always 
implies  comparisons,  a    STANDABD  of  comparison 
becomes  natural  and  useful:    such  a   standard   is 
money. 

2.  From  being    a    standard  of  comparison    in 
values,  money  comes  naturally  to  be  a  MEDIUM  in 
exchanges,  passing  from  hand  to  hand  to  facilitate 
the  ultimate  exchanges  of  society. 

3.  From  being  a  standard  of  comparison  in  values, 
the  denominations  of  money  come  to  be  a  MEASURE 
of  all  values  whatever. 

4.  The  only  way  to   keep  the   DENOMINATIONS 
steady  in  meaning,  is  to  keep  the  medium  steady  in 
purchasing-power. 

5.  GOLD  has  been  found  by  experience  to  be  the 
steadiest  in  purchasing-power   of  valuable   things: 
therefore,  it  is  the  best  money. 

6.  Subsidiary  coins  may  be  made  of  SILVER ;  but 
Grresham's  Law  forbids  a  double  standard. 

7.  Paper-money  is  only  PROMISES  ;  promises  are 
liable  to  be  broken  ;  and  therefore  promises  do  not 
make  a  good  money. 

8.  Credits  are  good  ;  but  that  does  not  prove  that 

CREDIT-MONEY  IS  good. 

9.  Credit-money  is  only  tolerable  when  instantly 

CONVERTIBLE. 

10.  Money  depreciated  from  the  highest  standard 
raises  PRICES,  but  not  of  all  things  equally  in  amount 
or  uniformly  in  time :  it  works,  therefore,  great  in- 
justice. 


MONEY.  289 

11.  Any  money  inferior  to  the  best  works  a  na- 
tional LOSS  of  necessity. 

12.  An  universal  coinage  would  be  a  vast  interna- 
tional GAIN. 

13.  The  interest  of  money  should  be  FREE  to  all 
contracting  parties. 


290  POLITICAL  ECONOMY. 


CHAPTER  V. 

CREDIT. 

POLITICAL  ECONOMY  is  the  science  of  sales,  or 
exchanges.  It  must,  therefore,  present  clearly  the 
principles  applicable  to  all  kinds  of  exchanges. 
We  have  already  learned  that  there  are  only  three 
kinds  of  things  that  are  ever  commercially  ex- 
changed among  men,  i.e.,  commodities,  services,  and 
claims.  There  are,  consequently,  only  six  cases  of 
value  possible,  since  something  belonging  to  each 
of  these  classes  may  be  exchanged  against  some- 
thing belonging  to  its  own  class  and  also  against 
something  belonging  to  each  of  the  other  classes, 
making  six  possible  cases  of  exchange.  Commod- 
ities with  the  mode  of  their  production  and  the 
law  of  their  exchange  we  have  already  sufficiently 
considered  ;  there  is  nothing  f  urtlier  to  be  added 
in  detail  in  respect  to  personal  services  viewed 
economically;  but  the  subject  of  Claims  now 
demands  and  will  certainly  reward  a  complete 
explanation.  It  is  to  be  noticed,  that  these  three 
classes  of  things  have  a  relation  to  the  three  grand 
divisions  of  time ;  commodities  are  property  in  the 


CREDIT.  291 

production  of  the  Past,  services  are  property  in 
the  production  of  the  Present,  and  claims  are 
property  in  the  production  of  the  Future.  What 
these  claims  are  in  their  nature,  how  they  arise  in 
practice,  their  different  kinds,  the  part  they  play 
in  the  commerce  of  the  world,  and  the  modes  in 
which  they  are  extinguished,  are  the  general  topics 
to  which  the  attention  of  my  readers  will  now  be 
directed. 

I  have  entitled  this  chapter  "  Credit,"  because 
on  the  whole,  that  is  the  best  word  under  which  tc 
discuss  the  whole  subject  in  hand.  I  have  found 
that  the  derivation  of  words  usually  casts  much 
clear  light  on  the  nature  of  that  which  is  designat- 
ed by  them ;  and  of  two  words  having  apparent- 
ly the  same  meaning,  that  one  is  to  be  preferred 
whose  origin  most  illumines  its  meaning.  The 
word  credit  is  derived  from  the  Latin  word  CUE- 
DO,  I  believe,  and  the  corresponding  term  debt  from 
DEBEO,  I  owe.  The  term  credit,  accordingly,  car- 
ries the  mind  at  once  to  future  time,  and  carries  it 
also  to  the  personal  action  of  a  human  will.  As 
there  can  be  no  credit  without  debt,  and  no  debt 
without  credit,  two  persons,  as  in  every  other  case 
of  value,  must  be  involved  in  every  case  of  credit ; 
arid  what  connects  the  two  persons  together  is  the 
belief  of  one  of  the  parties  in  a  virtual  promise 
made  by  the  other. 

Some  exchanges  are  finished  up  at  once,  the 
things  exchanged  and  the  ownership  in  them  are 
passed  over  then  and  there,  and  there  is  an  end ; 


292  POLITICAL  ECONOMY. 

but  the  peculiarity  of  credit  exchanges  is,  that 
the  transaction  is  not  then  and  there  ultimately 
closed,  but  one  (or  both)  of  the  parties  exchan- 
ging relies  on  the  good  faith  of  somebody  to  fulfil 
in  the  future  a  promise  expressly  or  impliedly 
made  in  the  exchange.  A  credit,  then,  may  be 
defined  as  a  right  to  demand  something  of  some- 
body;  and  a  debt  may  be  defined  as  a  duty  to 
pay  something  to  somebody.  There  are  not  two 
things  in  the  relation  between  a  creditor  and  a 
debtor  but  only  one  thing  —  not  a  right  and  a 
duty  that  can  be  separated,  but  a  right  founded 
on  the  duty  and  a  duty  growing  out  of  the  right. 
The  siogle  bond  connecting  the  two  persons  is 
called  in  the  Roman  Law,  which  is  clear  and  full 
on  the  subject  of  credit,  an  Obligation.  It  may 
also  be  termed  a  Contract.  It  may  also  be  termed 
indifferently  a  Credit,  a  Debt,  a  Claim. 

It  makes  a  great  difference  to  individual  persons 
whether  they  owe  others  or  are  owed  by  others,  but 
what  Political  Economy  has  to  do  with  is  what  lies 
between  debtors  and  creditors,  and  not  with  debtors 
or  creditors  personally.  This  intermediate  tiling, 
or  right,  is  property.  It  may  be,  and  is  constantly, 
bought  and  sold.  The  right  to  demand  from  the 
debtor  at  some  future  time  an  equivalent  for  what 
the  creditor  renders  now,  is  the  service  which  the 
creditor  receives  from  the  debtor  at  the  time  of 
the  exchange.  It  is  a  clear  case  of  value.  Each 
renders  to  the  other  satisfactory  equivalents.  The 
right  to  demand  a  future  equivalent  is  the  present 


CREDIT.  293 

equivalent  for  the  sake  of  which  something  else  is 
rendered.  All  our  definitions  apply  here  perfectly. 
Considered  as  a  mere  case  of  value,  the  transac- 
tion may  be  said  to  be  ended ;  but,  considered  as 
to  the  nature  of  the  exchange  which  requires 
another  exchange  to  complete  it,  the  transaction 
is  not  yet  ended,  and  we  must  follow  it  in  its 
principles  to  the  end. 

The  amount  of  transactions  in  credits  is  im- 
mense in  every  commercial  country,  and  is  be- 
coming constantly  greater.  Not  only  are  the 
exchanges  very  common  in  which  the  right  to 
demand  future  payment  is  one  of  the  services  ren- 
dered, but  the  exclusive  traffic  in  credits  —  ex- 
changes of  one  form  of  credit  for  another  —  has 
already  reached  gigantic  proportions  in  all  parts  of 
the  world.  The  exchanges  in  currency  values  at 
'the  New  York  Clearing-House  alone  for  the  years 
between  1867  and  1876  have  averaged  $28,152,- 
711,026.68  a  year;  and  during  the  same  nine  years 
the  exchanges  in  gold  values  at  the  London  Clear- 
ing-House alone  also  averaged  $24,058,845,555.55  a 
year,  calling  $5  the  equivalent  of  a  pound  sterling. 
With  trifling  exceptions  representing  balances  paid 
in  cash,  these  immense  sums  represent  pure  credits 
exchanged  against  each  other  on  the  principle  of 
SET-OFF,  which,  with  the  whole  operation  of  clear- 
ing-houses,  will  be  explained  pretty  soon.  These 
figures  at  only  two  commercial  points  are  given, 
as  samples  merely,  of  the  prodigious  amount  of 
transactions  in  credits  throughout  the  world. 


294  POLITICAL  ECONOMY. 

It  is  time  now  to  explain  exactly  the  nature  of 
credit,  and  to  remove  a  very  common  misappre- 
hension that  exists  in  relation  to  it.  A  friend  of 
mine,  a  practical  printer,  was  in  my  study  a  few 
days  ago,  and  speaking  of  collecting  his  dues,  he 
said  ;  —  "  When  I  have  done  a  piece  of  work  for 
a  man,  he  has  got  my  money,  and  I  never  hesitate 
to  ask  him  for  it."  The  sentiment  of  this  remark 
is  excellent,  but  its  terms  imply  considerable  mis- 
apprehension of  the  nature  of  credit.  Has  the 
debtor  any  money  belonging  to  the  creditor  ?  Not 
a  penny.  Would  the  creditor  be  justified  in  tak- 
ing out  of  his  debtor's  purse,  if  he  should  happen 
to  find  it,  the  amount  of  his  debt?  That  would 
be  downright  stealing,  just  as  much  as  if  there 
were  no  debt  between  them.  A  debt  is  never  the 
money  owed  to  the  creditor,  but  is  always  instead 
the  personal  duty  of  the  debtor  to  pay  the  money ; 
that  is  to  say,  no  particular  money  in  the  possession 
of  the  debtor,  not  even  that  which  the  creditor 
may  have  just  loaned  to  him,  belongs  to  the  cred- 
itor so  that  he  can  seize  upon  it  at  any  time  —  he 
has  parted  with  his  property  absolutely  to  the 
debtor  and  has  taken  in  lieu  of  it  a  right  to  demand 
something  back,  but  not  that  particular  money,  or 
any  other  particular  money.  The  debtor  has  the 
absolute  property  of  what  he  has  received,  he  can 
use  it  as  he  likes,  and  the  creditor  must  wait  until 
the  debtor  of  his  own  free  will,  or  compelled  by 
the  courts,  responds  to  his  personal  duty  to  repay. 

Thus  the  depositors  in  a  bank  part  with  their 


CREDIT.  295 

property  absolutely  to  the  bank  —  the  bank  be- 
comes absolute  owner  of  it  —  and  take  in  return  a 
right  to  demand  a  corresponding  sum  of  the  bank 
at  some  future  time.  The  Roman  law  recognizes 
all  this,  and  calls  a  debt  a  mutuum,  because  the 
property  passes  over  from  creditor  to  debtor,  while 
it  calls  a  thing  merely  lent,  when  the  very  thing 
lent  is  to  be  returned,  a  commodatum.1  The  English 
language  has  but  the  one  word  loan  for  two  very 
distinct  operations,  namely,  for  the  loan  of  a  book, 
for  example,  which  is  to  be  returned,  and  which 
may  be  reclaimed  if  the  owner  chance  to  find  it, 
the  Latin  commodatum,  and  the  loan  of  money,  or 
other  measurable  thing,  which  is  to  be  returned  in 
kind  merely,  which  may  not  be  reclaimed  except 
with  the  borrower's  consent,  the  ownership  of 
which  passes  to  him  completely,  the  Latin  mutuum. 
The  same  ambiguity  of  course  inheres  in  the  Eng- 
glish  word  borrow.  There  are  two  kinds  of  borrow- 
ing. Commercial  borrowing,  with  which  we  have 
now  especially  to  do,  passes  the  property  over  com- 
pletely into  the  hands  of  the  borrower,  and  gives 
to  the  lender  the  right  to  demand  something  of  some~ 
lody.  This  right  is  credit. 

The  duty  of  the  debtor  to  pay  exists  entirely 
independently  of  the  question  of  fact  whether  he 
has  any  thing  in  his  possession  to  pay  with,  or  not. 
A  debt  is  a  claim  on  &  per  son,  not  on  a  thing.  As  we 
have  already  seen  in  the  first  chapter,  value  is  alwaya 
determined  by  the  mutual  action  of  two  persons. 

i  S«e  Macleod's  "Elements  of  Banking,"  p.  72  et  teg.  187(1 


296  POLITICAL  ECONOMY. 

and  never  resides  in  things  separately  from  per- 
sons, so  debt,  which  is  one  form  of  value,  hinges 
on  the  free  action  of  persons,  and  Political  Econ- 
omy consequently  has  much  more  to  do  with  per- 
sons and  much  less  to  do  with  things  than  has 
been  commonly  supposed. 

Thus  the  Roman  law,  recognizing  indeed  the 
legal  obligation  in  a  commodatum,  in  which  there 
is  no  exchange  at  all,  called  that  right  a  jus  in  re, 
a  right  to  that  very  thing,  but  it  called  the  right 
to  which  a  mutuum  gave  birth,  which  was  a  real 
exchange,  a  jus  in  personam,  that  is,  a  right  against 
the  person.  It  was  also  called  a  jus  ad  rem,  which 
is  a  personal  right,  and  not  a  right  in  re.  So  when 
goods  are  sold  on  credit,  the  property  in  the  goods 
goes  completely  to  the  buyer,  and  the  seller  takes 
instead  the  right  or  property  to  demand  their  price 
at  some  future  time  at  the  hands  of  the  buyer. 
It  is  a  right  against  the  person  of  the  buyer,  and 
not  against  any  specific  goods  or  money  whatever. 
But  this  right  he  can  sell,  if  he  chooses,  because 
it  is  property. 

This  peculiarity  of  credit  explains  what  many 
have  found  it  difficult  to  understand,  namely,  that 
credit  in  all  its  forms  is  an  addition  to  the  mass  of 
other  exchangeable  property ;  thus,  as  above,  there 
are  the  goods,  which  are  property,  and  there  is 
besides  a  present  right  to  a  future  payment  for 
them,  which  is  property  also.  This  second  prop- 
erty is  a  claim  on  the  buyer  of  the  goods  for  some 
form  of  property  to  be  rendered  by  him  iu  the 


CREDIT.  297 

future.  In  other  words,  a  man  can  sell  what  he 
has  not  now  in  possession,  provided  there  be  a 
reasonable  prospect  that  he  will  have  it  in  pos- 
session at  the  time  when  he  agrees  to  render  it. 
The  belief  of  the  buyer  that  the  seller  will  havo 
it  in  possession  and  will  render  it  to  him  is  tlte 
foundation  of  all  such  credit  transactions.  Tlio 
gain  of  such  transactions  is,  that  a  new  value  has 
been  created,  a  new  purchasing-power,  something 
in  the  realm  of  exchange  additional  to  what  ex- 
isted before.  Not  only  does  the  Past  contribute 
to  exchange  in  commodities,  and  the  Present  in' 
services,  but  the  Future  also  in  promises,  which 
create  rights,  which  create  values.  Exchange  is 
not  shut  up  to  the  past  and  to  the  present:  the 
future  is  also  open  to  it  to  a  certain  degree.  That 
degree  is  marked  by  the  limits  of  rational  proba- 
bility. Credit  is  the  right  to  demand  sometliing 
in  future,  and  the  value  of  the  credit  is  the  pro- 
spective value  of  that  something,  and  if  that  some* 
thing  fails  to  come,  the  value  of  course  is  gone. 

There  is  an  actual  addition  to  the  world  of  val- 
ues through  credit,  but  not  an  unlimited  addition. 
The  degree  to  which  credit  can  be  carried  depends 
of  course  on  public  confidence ;  the  safe  limits  of 
credit  can  be  learned  only  by  a  sagacious  experi- 
ence ;  the  inherent  dangers  of  credit  arise  from 
the  uncertainties  of  the  future ;  but  the  property 
in  credit  and  the  propriety  of  credit  and  the  po- 
tency of  credit  are  certain.  At  least  90  parts  out 
of  every  100  of  the  payments  and  receipts  in  mod- 


298  POLITICAL  ECONOMY. 

ern  commerce  are  in  some  form  of  credit  rathei 
than  in  any  form  of  money ;  in  this  country  for 
the  past  twenty  years  almost  all  commercial  trans- 
actions have  been  mediated  either  by  pure  credit 
or  by  credit-money;  in  Scotland,  owing  to  their 
peculiar  banking  system  and  "  Cash  Credits "  to 
be  explained  pretty  soon,  coin  plays  an  almost 
inappreciable  part  in  business  transactions ;  while 
even  in  England,  where  bank-notes  for  less  than 
£5  are  prohibited,  it  is  estimated  that  not  far 
from  95  per  cent  of  commercial  business  is  medi- 
ated by  pure  credit. 

A  credit-right  is  commonly  recorded  on  paper. 
The  paper  is  the  evidence  of  the  right,  and  not 
the  right  itself.  These  paper  documents  are 
termed  Instruments  of  Credit,  and  may  be  divided 
into  two  classes :  first,  Promises  to  pay,  and  second, 
Orders  to  pay.  We  will  now  look  at  these  varied 
forms  of  Credit,  and  at  their  practical  advantages 
and  disadvantages. 

1.  Book  Accounts.  This  is  the  simplest  form 
of  a  promise  to  pay.  A  charge  in  a  trader's  books 
is  both  a  current  and  a  legal  evidence  that  the 
person  charged  has  received  a  certain  service,  and 
has  virtually  promised  to  render  the  sum  charged 
as  a  return  service.  The  promise  is  not  indeed 
express,  but  it  is  implied.  If  the  person  charged 
'fails  to  fulfil  this  promise,  fails  to  meet  the  cred- 
itor's right  to  demand  from  him,  the  law,  in  the 
absence  of  any  proof  to  make  the  charge  suspi- 
cious, collects  it,  if  possible,  and  forcibly  com 


CREDIT.  299 

pletes  the  exchange.  The  convenience  of  ;hia 
form  of  credit  is  so  great  that  it  is  not  likely  evel 
to  be  disused;  and  as  between  people  who  deal 
much  with  each  other  is  very  useful,  inasmuch  as 
(heir  respective  book  accounts  are  set  off  against 
ea  :h  other  in  settlement,  and  only  balances  are 
required  to  be  cancelled  in  money.  This  form  of 
credit,  however,  unless  the  parties  are  constantly 
becoming  mutually  indebted,  is  subject  to  some 
disadvantages  to  them  both.  (1.)  The  trader 
loses  in  this  way  for  a  time  the  use  of  a  part  of 
his  capital.  (2.)  He  cannot  ordinarily  make  this 
form  of  debt  to  him,  as  he  can  other  forms,  a 
means  of  gaming  credit  from  others.  (3.)  The 
number  and  amount  of  book  debts  as  against  any 
person  are  less  likely  than  other  forms  of  debt 
to  become  publicly  known,  and  consequently  the 
trader  is  liable  to  trust  persons  beyond  the  point 
of  their  solvency  and  his  safety. 

On  the  other  hand,  (1)  the  debtor  is  likely  for 
obvious  reasons  to  be  charged  a  higher  sum  for 
each  service  than  the  cash  customer  would  pay ; 
and  (2)  debts  contracted  in  this  way  are  apt  to 
accumulate  more  rapidly,  than  the  debtor  is  well 
aware  of ;  and  (3)  there  is  usually  less  satisfaction 
in  completing  by  payment  exchanges  in  a  mass 
than  similar  exchanges  one  by  one.  It  is  for  the 
benefit  of  both  creditor  and  debtor,  that  book 
credits  should  be  short  in  time,  and  settlements 
frequent,  since  thus  only  the  creditor  realizes  the 
full  gains  of  the  exchange,  and  the  debtor  keeps 


300 


POLITICAL  ECONOMY. 


fair  his  mercantile  name.  Doubtless,  for  many 
persons  in  many  situations  the  best  maxim  is 
"  Pay  as  you  go ; "  and  even  for  those  who  find 
book  credits  an  unquestioned  advantage,  the  max 
iin  is  excellent  "  Go  and  pay." 

2.  Promissory  Notes.  These  are  express  prom 
ises  to  pay  a  certain  sum  of  money  to  a  certain 
person  under  certain  conditions  of  time  and  inter- 
est, authenticated  by  the  signature  of  the  maker  of 
the  note,  and  usually  delivered  over  to  the  payee. 
Such  notes  are  issued  by  individuals,  corporations, 
and  governments.  The  interest  on  them  is  re- 
garded as  an  equivalent  for  the  delay  in  payment ; 
and  such  credit  given  by  one  person  to  another  is 
frequently  made  a  means  of  obtaining  other  credit 
from  another  party  still,  as  when  such  a  note  is 
discounted  by  a  banker  on  the  joint  credit  of  the 
maker  and  payee  through  the  payee's  indorsement. 
The  following  is  the  usual  form  of  a  promissory 
note :  — 

$500.  LYME,  N.H.,  Nov.  25, 1876. 

One  year  after  date  I  promise  to  pay  D.  C.  Churchill,  or 
order,  jive  hundred  dollars  with  interest  at  seven  per  cent,  for 
value  received, 

DAVID  TURNER. 


The  promissory  notes  of  governments  are  usually 
called  in  this  country  bonds.  They  pledge  the 
public  faith  by  the  signature  of  authorized  officials 
to  return  the  principal  to  the  lender  of  the  money 
with  interest  in  the  mean  time  at  a  specified  rate 


CREDIT.  301 

Sometimes  the.  time  of  repayment  is  distinctly 
specified,  as  was  the  case  with  all  the  bonds  of  the 
United  States  issued  before  1865  ;  at  other  times, 
the  bonds  are  made  payable  within  a  date  specified, 
as  the  so-called  consols  of  1865,  1867,  and  1868, 
which  are  made  payable  not  more  than  forty  years 
from  date ;  while  consols  proper,  like  most  of  the 
British  debt,  and  like  the  U.  S.  bonds  authorized 
in  1870,  are  payable  after  a  specified  time  at  the 
option  of  government.  The  United  States  have 
recently  negotiated  bonds  bearing  4£  per  cent  in- 
terest payable  after  fifteen  years,  and  4  per  cents 
payable  after  thirty  years. 

These  consols  are  so  named  from  the  "  Consoli- 
dated "  debt  of  Great  Britain,  which  adopted  for 
the  convenience  of  the  government  this  feature 
of  non-obligation  to  pay  the  debt  on  a  day  cer- 
tain. The  United  States  have  paid  of  late  years 
various  rates  of  interest  on  their  bonds,  of  which 
the  highest  was  7.30  per  cent  in  currency,  and  the 
lowest  4  per  cent  in  gold.  It  is  thought  that 
even  the  3£  per  cents  might  be  now  negotiated  at 
par,  since  the  4  per  cents  have  been  worth,  at 
times,  as  much  as  7  per  cent  premium  in  gold. 
States,  cities,  railroads,  and  other  corporations 
issue  similar  bonds.  Railroad  bonds  are  frequently 
secured  by  mortgages  on  the  road  itself  and  its 
rolling  stock  and  other  property,  and  thus  become 
a  very  safe  form  of  investment. 

3.  Bank  Bills.  These  are  indeed  also  promissory 
notes  of  a  corporation,  but  they  have  this  pecu- 


302  POLITICAL  ECONOMY. 

liarity  that  they  are  not  on  interest,  and  the  bank 
offers  as  a  sort  of  compensation  for  this  to  redeem 
the  notes  into  coin  on  the  demand  of  any  holder 
It  is  this  proffered  redemption  into  coin  that  en- 
ables the  notes  of  a  bank  to  circulate  as  money, 
while  the  notes  of  other  corporations  equally  solid  do 
not  circulate  as  money.  The  privilege  of  banks  to 
circulate  their  notes  as  money,  always  gained  under 
governmental  regulations,  and  sometimes  under 
special  governmental  security,  does  not  essentially 
alter  the  nature  of  their  notes ;  they  are  a  form  of 
credit ;  they  are  promises  to  pay  on  demand  ;  and 
although  they  are  commonly  issued  against  another 
form  of  credit,  namely,  against  the  interest-bearing 
notes  of  individuals  who  resort  to  the  bank  for 
discounts,  this  does  not  make  their  nature  differ- 
ent from  the  individual  notes  against  which  they 
exchange.  It  is  an  instance  of  exchanging  one 
form  of  credit  for  a  second  which  has  a  greater 
currency  or  validity  than  the  first,  and  for  this 
superiority  of  the  bank  credit  the  individual  credit 
pays  an  interest,  in  other  words,  is  discounted. 

Bank  bills  which  are  actually  and  always  con- 
vertible into  coin  on  demand  are  a  very  conven- 
ient form  of  credit,  and  find  no  difficulty  in  being 
riccepted  as  a  substitute  to  a  certain  extent  of  coin 
money.  But  such  notes  are  apt  to  become  incon- 
vertible in  times  of  commercial  pressure.  All  the 
banks  in  the  United  States  suspended  specie  pay- 
ments Dec.  31,  1861,  and  only  resumed  them  Jan. 
1,  1879.  The  present  national  bank  bills  are  re- 


CREDIT.  308 

deemed  in  greenbacks,  and  the  government  re- 
deems the  greenbacks  in  gold  or  silver  at  certain 
stated  places.  The  greenbacks  themselves  were 
promissory  notes  issued  by  the  national  govern- 
ment directly,  were  not  on  interest,  and  were  made 
legal-tender  for  debts  as  a  sort  of  compensation 
for  their  inconvertibility  and  non-interest-bearing 
character.  It  may  well  be  doubted,  however, 
whether  the  making  these  notes  a  legal-tender  for 
debts  has  ever  added  any  thing  to  the  value  which 
they  would  have  possessed  as  mere  promissory 
notes  of  the  government,  or  whether,  if  the  legal- 
tender  quality  of  them  were  now  withdrawn,  they 
would  not  continue  to  be  as  valuable  as  before. 
When  specie  payments  were  resumed  by  the  gov- 
ernment and  by  the  banks,  the  national  bank  bills 
became  very  acceptable  to  the  people,  partly  on 
account  of  the  attitude  of  the  national  govern- 
ment towards  them,  which  not  only  holds  as  trus- 
tee securities  for  their  redemption,  but  stands 
towards  them  also  as  principal  pledging  the  public 
faith.1 

4.  Bank  Deposits.  A  bank  is  an  institution  for 
the  creation  and  extinction  of  credits.  As  a  mer- 
chant is  a  buyer  and  seller  of  commodities,  so  a 
banker  is  a  buyer  and  seller  of  credits,  buying  some 
credits  with  other  credits,  and  some  credits  also  with 
money,  and  money  also  with  credits.  A  banker 
needs  some  money  in  order  to  carry  on  his  business, 
but  the  amount  of  his  money  is  a  mere  trifle  com- 
pared with  the  amount  of  the  credits  in  which  he 
i  Amasa  Walker's  Science  of  Wealth,  page  233. 


304  POLITICAL  ECONOMY. 

deals.  The  word  lank  meant  originally  a  mass,  an 
accumulation,  as  we  still  say,  a  sand-bank,  and  the 
banks  of  a  river.  The  word  was  first  applied  to 
commercial  transactions  in  Venice  as  early  as  1171, 
when  the  Republic  was  at  war,  and  wished  to  raise 
a  loan.  The  Great  Council  ordered  that  every 
citizen  should  contribute  one  per  cent  of  his  prop- 
erty, receiving  five  per  cent  interest  on  this,  and 
that  commissioners  should  manage  the  payment 
of  interest  to  the  contributors,  and  the  transfers 
of  their  stock.  The  loan  itself  was  called  in 
Italian  monte,  but  as  the  Germans  at  that  time 
held  a  considerable  part  of  Italy,  the  German  word 
banck,  which  means  the  same  as  monte,  came  to  be 
applied  to  it.  Thus  the  word  bank  in  its  commer- 
cial sense  meant  first  a  public  loan  —  the  aggregate 
of  the  contributions  of  the  citizens  of  Venice  — 
and  also  naturally  the  place  where  the  commis- 
sioners paid  the  interest  and  transferred  the  stock. 
The  origin  of  the  Bank  of  England  was  very 
similar  to  this,  since  the  original  stockholders  were 
only  contributors  to  a  public  loan,  and  the  larger 
part  of  the  capital  of  the  Bank  is  invested  in  the 
public  debt  of  England  to  this  day.  Gradually 
the  idea  of  a  public  debt  became  mostty  disso- 
ciated from  the  meaning  of  the  word  bank,  while 
the  other  fundamental  meanings  still  inhere  in  it, 
A  bank  is  a  place  to  which  the  money  of  other 
people  is  brought,  as  well  as  the  banker's  own ; 
and  hence  we  speak  of  banks  of  deposit :  it  is  a 
place  in  which  one  form  of  credit  is  exchanged  for 


CEEDIT.  30f) 

another  form ;  and  hence  we  speak  of  banks  of 
discount :  it  is  frequently  a  place  where  promissory 
notes,  designed  to  circulate  as  money,  are  issued; 
and  hence  we  speak  of  banks  of  circulation.  These 
three  are  the  main  functions  of  banks ;  and  oi 
these  the  two  former  are,  while  the  third  is  not,  es- 
sential to  banking.  The  central  idea  in  banking  !3 
for  the  banker  to  receive  his  customer's  money  and 
credits  becoming  due,  and  to  render  in  return  for 
these  a  credit,  that  is,  a  right  to  demand  from  him 
an  equal  sum  at  a  future  time.  The  evidence  of 
this  right  is  entered  on  the  banker's  books,  and 
thus  becomes  what  is  now  called  a  DEPOSIT. 

It  is  needful  for  my  readers  to  understand  dis- 
tinctly what  deposits  are,  especially  as  they  are 
very  different  in  their  nature  from  the  Depositum 
of  the  Roman  Law,  and  different  from  what  the 
English  word  seems  to  mean.  Depositum  meant 
any  thing  passed  over  to  another  person  for  safe 
keeping,  the  ownership  of  which  was  not  passed 
over,  and  which  formed  no  element  of  an  exchange. 
If  an  exchange  took  place,  it  was  a  mutuum ;  if 
no  exchange  took  place,  the  thing  handed  over  to 
another  was  a  depositum,  which  very  thing  was 
to  be  returned.  Similarly,  the  English  word  de- 
p:sit  would  seem  to  mean  the  thing  deposited, 
but  in  banking  it  does  not.  The  ownership  of  the 
money  and  of  the  credits  deposited  passes  over 
completely  from  the  customer  to  the  banker. 
The  latter  has  the  right  to  do  just  what  he  pleases 
with  them ;  only  his  entry  of  the  transaction  in 


POLITICAL  ECONOMY. 

his  books  is  a  virtual  promise  to  pay  that  amount 
on  demand  to  the  customer,  and  he  must  be  read}' 
to  respond  to  his  customer's  call,  whenever  the 
latter  demands,  not  his  own  money,  but  so  much 
of  his  banker's  money.  The  deposit,  therefore, 
is  not  the  thing  deposited,  but  a  credit  purchased 
by  the  things  deposited.  It  is  in  this  way  that  a 
banker  buys  money  with  credit.  The  customer 
has  now  the  right  to  call  on  the  banker  by  check 
or  otherwise  for  such  sums  (not  to  exceed  the  de- 
posit in  the  aggregate)  and  at  such  times  as  may 
suit  his  own  convenience.  He  has  such  confidence 
in  the  banker,  and  finds  it  so  useful  to  have  deal- 
ings with  him,  that  he  prefers  a  credit  on  him  to 
the  possession  of  the  money  itself.  The  banker 
relieves  him  from  the  care  of  his  money  and  bills 
receivable,  and  at  the  same  time  is  ready  to  fur- 
nish him  money  or  credit  to  meet  his  bills  payable. 
This  motive  on  the  part  of  bank  customers  is  so 
practically  operative,  that  the  average  deposits  in 
the  banks  of  the  city  of  New  York  during  the  nine 
weeks  of  August  and  September,  1876,  was  $228,- 
735,877. 

The  motive  on  the  part  of  the  banker  to  receive 
his  customers'  funds  on  these  terms  is  the  fact 
that  he  can  safely  use  a  large  portion  of  theso 
funds  in  other  operations  in  credit  profitable  to 
himself,  and  at  the  same  time  be  sure  of  being 
Able  to  meet  his  customers'  calls  for  money.  He 
finds  by  experience  that  many  of  his  customers 
wish  always  to  have  a  balance  in  his  hands ;  that 


CREDIT.  307 

wliile  some  of  them  are  constantly  drawing  011  him 
for  cash,  others  of  them  are  as  constantly  deposit- 
ing with  him  in  cash,  and  that  consequently  he  can 
use  with  safety  a  part  of  the  money  he  has  pur- 
chased with  his  credit  to  purchase  other  credits 
with. 

Deposit-banking  may  be  illustrated  by  the  prac- 
tice of  insurance  :  it  is  abstractly  possible  that 
all  the  lives  insured  by  a  Life  Insurance  Company 
may  terminate  on  a  single  day,  in  which  case  no 
life  insurance  company  in  the  world  could  meet  its 
obligations ;  and  it  is  also  abstractly  possible  that 
all  the  houses  insured  in  a  Fire  Insurance  Com- 
pany might  be  burned  in  a  single  night,  which 
would  cause  the  collapse  of  the  soundest  company 
in  the  world ;  and  so  it  is  abstractly  possible  that 
a  banker  might  be  called  upon  to  pay  all  his 
deposit-liabilities  at  once,  which  would  break  him 
of  course ;  but  in  all  these  cases  of  abstract  possi- 
bility, there  is  on  the  other  hand  a  certainty  that 
that  supposition  will  never  become  a  fact.  Pre- 
cisely to  what  extent  a  banker  may  multiply  his 
liabilities  to  pay  on  demand  over  the  amount  of 
cash  kept  on  hand  for  that  purpose  must  be  ascer- 
tained by  experience  in  each  locality  with  refereuce 
to  the  general  modes  of  doing  business  there.  If 
the  banker  has  at  any  time  misjudged,  he  must 
sell  some  of  the  securities  he  has  bought,  or  bor- 
row money  on  them. 

Taking  up  a  chance  report  of  the  condition  of 
the  Adams  National  Bank,  at  North  Adauia,  in  the 


308  POLITICAL  ECONOMY. 

State  of  Massachusetts,  at  the  close  of  business, 
Oct.  2,  1876,  and  I  find  that  "  individual  deposits 
subject  to  check"  were  $344,482.16,  while  of 
"  checks  and  other  cash  items,"  "  bills  of  other 
banks,"  "silver  coin,"  "legal-tender  notes,"  in 
short,  all  the  means  available  on  that  day  to  pay 
checks  with,  aggregated  but  $38,299.62.  That 
was  a  little  more  than  11  per  cent  of  the  imme- 
diate liabilities,  and  yet,  I  presume,  it  was  amply 
sufficient.  Each  depositor  felt  safe,  and  was  safe  ; 
the  bank  was  making  a  profitable  use  of  the  differ- 
ence between  these  two  sums ;  arid  the  gain  for 
the  whole  community  from  such  operations  in 
credit  is,  that  a  new  capital  has  been  thereby 
created,  a  new  purchasing-power,  something  in  the 
world  of  value  additional  to  what  existed  before. 
It  is  of  the  very  nature  of  credit  that  a  new  value 
is  created  by  it.  If  credit  be  kept  within  due 
limits,  if  its  obligations  be  assumed  with  a  constant 
regard  to  the  uncertainties  as  well  as  to  the  certain- 
ties of  the  future,  it  is  a  great  blessing.  But  like 
all  other  great  blessings,  it  is  liable  to  be  greatly 
abused.  Deposit-banking,  however,  which  is  one 
of  the  best  forms  of  credit,  is  being  extended  more 
and  more  every  year,  especially  in  all  English- 
speaking  communities. 

5.  Bank  Discounts.  It  is  because,  in  accord- 
ance with  the  primary  meaning  of  the  word  lank, 
bankers  gather  up  by  means  of  deposits  into  their 
own  hands  values  that  belonged  to  their  customers, 
as  well  as  values  that  belong  to  themselves,  that 


CEEDIT.  309 

they  are  able  so  largely  to  buy,  that  is,  to  discount, 
credit-paper  offered  to  them  by  these  same  and 
other  customers.  The  bank  statement,  from  which 
I  have  quoted  above,  shows  of  "loans  and  dis- 
counts" $595,309.58.  That  was  the  amount  of 
the  promissory  notes  or  bills  of  exchange  bought 
by  that  bank  at  that  time  for  the  sake  of  the  dis- 
count upon  them.  Discount  is  the  difference  be- 
tween the  face  and  the  price  of  a  debt.  I  use  the 
phrase  "price  of  a  debt"  advisedly  in  order  to 
make  plain  the  fact  that  whoever  gets  a  note  or 
bill  discounted  at  a  bank  sells  it  to  the  banker.  It 
is  not  &  favor  done  me  by  my  banker  when  he  dis- 
counts my  note,  it  is  a  trade  we  make.  The  banker 
is  not  primarily  a  money-lender,  he  is  a  buyer  and 
seller  of  credits. 

When  I  take  my  note  indorsed  or  fortified  by 
another  name  to  the  bank,  I  do  not  go  as  a  men- 
dicant asking  a  favor,  I  go  as  a  merchant  offering 
to  sell  something.  If  the  banker  does  not  care 
to  buy  my  wares,  I  need  not  take  it  hard  of  him. 
Neither  has  he  occasion  to  consult  any  thing  but 
his  own  business  interest  in  the  premises.  Pity 
lias  nothing  to  do  with  it,  his  personal  respect 
for  me  has  nothing  to  do  with  it,  it  is  a  simple 
qr.jstion  whether  my  paper  is  a  good  thing  for 
hiii  to  buy  then  and  there.  If  he  concludes  neg- 
atively, I  have  no  more  ground  of  offence,  than 
if  he  should  decline  to  buy  my  horse  or  house. 
My  motive  in  selling  the  paper  is  to  get  either 
ready  money  or  else  the  right  to  draw  check* 


310  POLITICAL  ECONOMY. 

on  liim  at  my  convenience  ;  and  his  motive  in 
buying  it  is  to  get  the  difference  between  the  face 
of  the  note  and  the  price  at  which  I  am  willing  to 
sell  it.  If  this  view  of  the  matter,  which  is  the 
true  view,  always  prevailed  on  both  sides  of  bank 
counters,  it  would  be  better  than  it  is  for  all  par- 
ties concerned. 

It  is  more  in  accordance  with  genuine  banking 
for  the  banker  to  pass  over  the  price  of  the  dis- 
counted note  to  his  own  books  hi  the  form  of  a 
credit  due  to  the  customer,  than  to  pay  the  money 
over  at  once.  Those  who  do  the  latter  are  called 
in  England  bill-discounters  rather  than  bankers, 
and  though  most  of  our  bankers  do  both,  there  is 
a  strong  tendency  towards  the  separation  of  the 
two  in  this  country  also.  The  dependence  of  bank- 
ing on  ordinary  business  is  something  as  follows ;  — 
manufacturers  and  wholesale  merchants  usually 
sell  goods  on  time,  as  it  is  called,  say  three  or  six 
months.  A  debt  is  thus  created.  The  manufac- 
turer or  wholesaler  is  creditor  and  the  jobber  or 
retailer  is  debtor.  But  debts,  as  we  now  well 
know,  are  property ;  and  the  creditor  in  this  case 
wants  to  avail  himself  of  his  property  at  once  for 
further  production  ;  and  so  he  either  takes  a  note 
from  his  debtor  or  draws  a  bill  upon  him,  and  this 
piece  of  property  is  ready  for  sale.  The  banker 
buys  it,  that  is  to  say,  the  creditor  passes  over  to 
him  the  right  to  demand  payment  of  this  debt 
at  the  end  of  three  or  six  months,  and  receives 
from  the  banker  either  money  or  so  much  of  the 


CREDIT. 

banker's  credit,  that  is,  a  deposit  in  the  banker's 
books  in  the  creditor's  favor.  For  this  furnishing 
the  creditor  with  money  or  with  a  more  available 
credit  in  lieu  of  his  mercantile  paper,  the  banker 
charges  a  percentage.  This  is  discount,  and  is  the 
chief  source  of  profit  in  ordinary  banking.  When 
the  mercantile  paper  matures,  the  banker  gets  from 
the  debtor  its  full  face.  Such  bankable  paper 
is  the  following :  — 

$1000.  WlLUAMSTOWN,  MASS.,  Oct.  30,  1880. 

Three  months  after  date  I  promise  to  pay  to  the  order  of  John 
Wadhams,  one  thousand  dollars,  payable  at  the  Adams  National 
Bank,  value  received. 

JAMES  L.  SMEDLEY 

John  Wadhams'  name  on  the  back  of  this  paper, 
and  the  requisite  government  stamp,  make  it,  if 
the  parties  are  "good,"  an  acceptable  note  for  dis- 
count. Two  names  are  usually,  not  always,  requi- 
site, since  a  note  maybe  drawn  payable  to  one's  own 
order,  but  paper  is  discounted  on  the  strength  of 
all  the  names  upon  it.  The  form  of  the  paper  to  be 
discounted  makes  little  difference  with  the  banker; 
a  note  is  as  good  as  a  bill  and  a  bill  as  good  as  a 
note ;  his  concern  is  with  the  genuineness  of  the 
signatures  and  with  the  financial  solidity  of  the  men 
who  make  them  ;  if  he  cannot  discount  all  the 
paper  offered,  he  gives  the  preference,  of  course, 
to  regular  customers  and  large  depositors  ;  and 
most  bankers  prefer  that  a  real  business  transac- 
tion should  be  at  the  bottom  of  the  paper  they 


812  POLITICAL  ECONOMY. 

discount,  rather  than  a  mere  accommodation  be- 
tween the  parties  signing,  but  the  security  of  the 
bankers  is  after  all  in  the  soundness  of  the  men 
whose  names  are  on  the  paper  rather  than  in  the 
nature  of  the  commercial  relations  between  them. 
Bankers  are  substantially  dealers  in  credit 
rather  than  in  money.  Still,  so  far  forth  as  they 
buy  discountable  notes  and  pay  for  them  in  money, 
they  become  money-lenders ;  and  they  become 
such  also  by  loaning  out  on  call  to  those  who  have 
collateral  securities  to  pledge,  such  reserve  sums 
as  they  do  not  wish  to  invest  in  negotiable  paper 
on  account  of  the  time  involved  before  such  paper 
matures.  The  following  is  the  form  of  such  a 
pledge :  — 

$5000.  TROY,  N.  Y.,  December  3, 1876. 

On  demand  we  promise  to  pay  to  the  Bank  of  Troy,  or  order, 
Jive  thousand  dollars,  for  value  received,  with  interest  at  the  rate 
of  six  per  cent  per  annum,  having  deposited  with  said  bank,  as 
collateral  security,  with  authority  to  sell  the  same,  at  the  Brokers' 
Board,  or  at  public  or  private  sale,  or  otherwise  at  said  bank's 
option,  on  the  non-performance  of  this  promise,  and  without 
notice,  — 

12  shares  N.  Y.  Central  Sf  H.R. 

40    do.    Michigan  Southern. 

FRANKLIN  R.  BLISS  &  Co. 

The  rate  of  discount  charged  by  bankers,  or  by 
bill-discounters,  is  a  matter  of  the  utmost  impo^- 
tance  both  to  business  in  general  and  to  credit  in 
particular.  Discount  is  the  difference  between 
the  face  and  the  price  of  a  debt,  and  if  this  differ 


CREDIT.  813 

ence  be  very  large,  it  is  a  discouragement  to  busi- 
ness, fewer  notes  are  offered  for  discount,  deposits 
consequently  decline  in  amount,  and  the  banks 
become  less  able  to  discount  for  the  very  reason 
that  they  have  discounted  less.  Whenever  there 
is  a  stable  measure  of  value,  a  general  commercial 
confidence,  and  a  vigorous  production  of  all  sorts, 
in  any  community,  there  will  be  naturally  a  low 
late  of  discount,  and  banks  will  share  in  the  gen- 
eral prosperity,  not  through  a  high  price  for  every 
piece  of  credit,  but  through  a  low  price  for  many 
pieces  of  credit,  and  through  the  ability  to  use 
profitably  the  large  deposits  that  are  natural  in 
such  circumstances.  When,  however,  there  is 
commercial  pressure,  and  a  consequent  strong  de- 
mand for  money  or  credit,  a  rise  in  the  rate  of  dis- 
count is  both  proper  and  useful.  Banks  have  a 
right  to  get  all  that  they  can  for  their  services  in 
an  open  market,  and  it  is  best  for  the  public  that 
they  use  this  right,  for  then  the  services  are  sure 
to  be  rendered  to  those  who  most  need  them. 
The  only  practical  way  to  find  out  who  want 
money  or  credit  the  most  is  to  find  out  who  will 
pay  the  most  for  its  use.  A  rising  rate  of  discount 
in  time  of  money  pressure  is  somewhat  like  the 
brakes  upon  the  railroad  train.  It  manages  the 
momentum.  It  graduates  the  supply  to  the  de- 
mand. It  tends  to  leave  something  to  those  most 
desperately  in  need. 

It  is  a  dictate  alike  of  common  sense  and  of 
copious  experience  that,  in  times  of  commercial 


81-1  -    POLITICAL  ECONOMY. 

panic,  strong  banks,  instead  of  refusing  to  discount 
altogether,  as  has  often  been  done,  ought  to  dis- 
count very  freely  indeed ;  but,  at  the  same  time, 
they  ought  to  raise  the  rate  of  discount  very  con- 
siderably, so  as  to  shut  off  those  who  can  forego 
the  use  of  the  money  or  credit,  and  leave  the  more 
to  those  who  want  it  the  more.  The  British  govern 
ment  has  three  times  allowed  the  Bank  of  Eng- 
land, to  violate  its  charter  of  1844,  and  to  issue 
more  bills  in  the  way  of  buying  therewith  commer- 
cial paper  than  the  charter  permits,  but  it  has 
coupled  its  permission  with  the  condition  that  the 
Bank  should  not  discount  any  paper  at  less  than 
ten  per  cent.  The  permission  on  the  one  hand  was 
wise  and  timely,  for  in  each  instance  it  dissipated 
a  great  panic  in  the  course  of  a  few  hours,  and  it 
is  plain  to  reason  that  free  discounting  on  the  part 
of  those  able  to  offer  it  in  times  of  pressure  tends 
powerfully  to  bring  back  confidence  again ;  and 
so,  on  the  other  hand,  was  the  requirement  wise  of 
a  sharp  rise  in  the  rate  of  discount,  so  as  to  dis- 
criminate in  favor  of  those  whose  needs  were  the 
greatest. 

The  Bank  of  England,  as  the  principal  bank  in 
Great  Britain,  and  as  closely  connected  with  the 
government,  acts,  and  is  designed  to  act,  as  a  bank 
of  support  to  the  private  and  public  credit  in  that 
cor.ntry.  Accordingly,  while  it  does  a  regular 
business  as  a  bank  of  deposits  and  discounts,  it 
means  to  keep  its  rate  of  discount  slightly  above 
the  rate  demanded  by  private  bankers  and  bill 


CREDIT.  315 

discounters  in  London,  so  as  not  to  come  into 
competition  with  them  much  in  their  ordinary 
business,  and  so  as  to  act  as  a  bank  of  support  to 
them  and  all  others  in  case  of  commercial  pressure. 
All  banks  have  just  about  so  much  credit  to  sell, 
and  no  more ;  most  banks  sell  in  ordinary  times 
about  all  the  credit  they  have;  if  the  Bank  of 
England  did  this,  it  would  be  useless  in  time  of 
panic  as  a  great  national  bank  of  support ;  accord- 
ingly, in  ordinary  times,  it  keeps  its  rate  of  dis- 
count above  the  market-rate,  and  is  thus  prepared 
to  do  good  service  in  selling  its  reserve  credit  when 
the  credit  of  the  bankers  below  is  exhausted. 
When  their  discount-rate  rises,  its  rate  rises  a  little 
more ;  and  when  they  are  at  the  end  of  their  rope, 
there  is  usually  an  abundance  of  slack  rope  still  in 
the  great  institution  above. 

As  gold  can  be  drawn  out  of  the  Bank  of  Eng- 
land by  the  checks  of  depositors  as  well  as  by  the 
presentation  of  notes  for  redemption,  the  rate  of 
discount  becomes  a  matter  of  prime  importance  in 
the  practical  management  of  the  bank.  Whoever 
gets  a  note  or  bill  discounted  there,  has  the  right 
to  draw  out  the  proceeds  at  will  by  check  either 
in  bank-notes,  or  coin,  at  his  option.  The  whole 
line  of  deposits  is  a  line  of  liabilities  to  pa}'  out 
gold,  if  the  depositors  demand  it.  Accordingly, 
as  these  deposits  come  largely  through  discounts, 
whenever  there  is  a  strong  tendency  to  draw  out 
gold  so  as  to  weaken  the  reserves  of  the  bank, 
the  directors  have  an  effectual  remedy  in  raising 


316  POLITICAL  ECONOMY. 

the  rate  of  discount.  Of  course,  a  rise  in  the  rate 
of  discount  does  not  affect  liabilities  already  in- 
curred ;  but  it  tends  to  lessen  the  liabilities  of  the 
immediate  future ;  because,  the  higher  the  price  the 
bank  charges  for  its  credit,  the  fewer,  so  far  forth, 
will  be  its  customers,  and  the  smaller  its  line  of  de- 
posits. Debts  are  property ;  and  those  who  have 
debts  to  sell  do  not  like  a  high  rate  of  discount, 
which  is  only  another  phrase  to  describe  a  low 
price  for  their  property;  and,  therefore,  higher 
rates  of  discount  drive  off  from  the  bank  some  of 
the  sellers  of  bills  of  exchange  and  promissory 
notes,  and  thus  tend  to  stop  a  continuous  drain 
of  gold  from  its  vaults.  The  Bank  of  England  is 
managed  throughout  by  so  simple  a  matter  as  the 
turning  back  and  forth  of  this  magic  screw  of 
discount.  If  the  rate  is  put  too  high,  the  bank 
loses  business,  and  consequently  profits;  if  the 
rates  are  kept  too  low,  the  reserves  are  endangered 
from  a  drain  of  gold,  which  depositors  may  put 
to  a  profitable  use  either  at  home  or  abroad. 

And  this  leads  me  to  say  here,  what  we  shall 
understand  better  when  we  have  studied  the 
course  and  par  of  international  exchanges,  that 
whenever  the  foreign  exchanges  turn  for  any  con- 
siderable time  against  London,  it  is  a  sign  for  the 
directors  of  the  Bank  of  England  to  raise  their 
rate  of  discount ;  for,  otherwise,  the  sums  needed 
to  pay  off  the  balances  of  foreign  trade  would  nat- 
urally be  drawn  from  the  reserves  of  the  bank. 

Also,  whenever  the  rates  of  discount  are  decid- 


CKEDIT.  317 

edly  higher  in  the  neighboring  countries  than  they 
are  in  London,  it  is  usual  for  the  directors  of  the 
Bank  of  England  to  raise  their  own  rates ;  for, 
otherwise,  gold  would  certainly  be  drawn  from 
their  vaults,  and  sent  to  Paris,  Antwerp,  Ham 
burg,  or  Frankfort,  as  the  case  may  be,  in  order  to 
buy  therewith  good  paper  in  those  markets  where 
the  rates  of  discount  are  higher.  Gold  goes  ir> 
one  night  from  London  to  the  continent.  To  buy 
notes  of  hand  or  bills  of  exchange  at  high  rates 
of  discount  with  gold,  is  the  same  thing  as  loan 
ing  out  gold  at  a  high  rate  of  interest ;  and  my 
readers  perceive,  accordingly,  that  it  is  not  safe 
for  London  to  maintain  for  any  great  length  of 
time  decidedly  lower  rates  of  discount  than  pre- 
vail on  the  continent. 

This  one  fact  illustrates  on  the  one  hand  how 
the  world  is  more  and  more  becoming  one  in  its 
commercial  interests  and  methods,  and  on  the 
other  hand  how  potent  an  instrument  over  both 
domestic  and  foreign  exchanges  is  a  rising  or  fall- 
ing rate  of  bank  discount.  London  is  the  best 
place  to  observe  the  potency  of  this  instrument, 
because  London  is  the  commercial  centre  of  the 
world ;  but  the  Bank  of  France,  and  all  the  other 
gieat  European  banks  have  learned  from  the  Bank 
of  England  how  to  use  the  rate  of  discount.  In- 
deed, in  regulating  wisely  the  rate  of  discount 
from  time  to  time  in  accordance  with  the  state 
of  domestic  and  foreign  exchanges  consists  the  art 
qf  banking  ;  and,  in  the  light  of  this,  appears  more 


318  POLITICAL 

clearly  than  ever  the  anomaly  and  the  mischief  of 
usury  laws. 

In  February,  1880,  the  amount  of  discounted 
paper  in  our  national  banks  alone  was  $960,000,- 
000,  an  increase  in  ten  months  of  nearly  one-filth. 

We  come  next  to  speak  of  Orders  to  pay,  which 
proce3d  from  creditors,  as  Promises  to  pay  do  from 
debtors. 

6.  Checks.  A  check  is  a  written  order  on  a 
banker,  or  other  person,  directing  him  to  pay  to 
the  person  named  in  the  check,  or  to  his  order,  a 
certain  sum  of  money.  Of  course,  the  drawer  of 
the  check  is  creditor  with  reference  to  the  banker 
on  whom  it  is  drawn,  but  is  at  the  same  time 
debtor  with  reference  to  the  person  in  whose  favor 
it  is  drawn.  Commonly,  a  check  is  drawn  against 
a  deposit,  which,  as  we  have  seen,  is  a  debt  of  the 
banker  to  the  depositor.  The  depositor  realizes 
this  debt  through  a  check,  or  series  of  checks. 
When  the  person  drawing  the  check  and  the 
person  receiving  it  keep  deposits  wilh  the  same 
banker,  there  is  no  need  of  any  money  passing  at 
all  in  the  premises,  the  sum  being  merely  trans- 
ferred in  the  banker's  books  from  the  credit  of  the 
drawer  to  that  of  the  receiver. 

The  introduction  of  banks  has  largely  changed 
the  old  methods  of  doing  business.  Men  have 
found  that  it  is  safer  and  more  convenient  to  de- 
posit their  money  and  bills  becoming  due  with  a 
banker,  and  to  make  their  payments  by  checka 
upon  him,  than  to  keep  their  own  money  and  to 
make  their  payments  directly.  The  banker  is  will 


CBEDIT.  819 

ing  to  do  this  business  for  nothing,  i.nd  sometimes 
to  allow  the  depositors  a  low  rate  of  interest  on  bal- 
ances left  in  his  hands,  in  consideration  of  the  privi- 
lege he  enjoys  of  loaning  out  such  proportion  of  tlio 
sums  as  he  deems  safe  to  other  parties  at  a  higher 
rate  of  interest.  The  custom  of  depositing  one's 
funds  with  a  banker,  and  the  consequent  use  of 
checks,  is  widening  constantly  in  commercial 
countries,  especially  in  English-speaking  countries, 
among  all  classes  of  people.  It  is  difficult  to  say 
whether  the  advantages  of  the  system  are  greater 
to  the  banker  or  to  the  depositor ;  both  alike  profit 
by  it,  as  well  as  the  community  at  large ;  and  noth- 
ing illustrates  better  the  nature  and  benefits  of 
credit. 

There  has  lately  been  instituted  in  England 
what  is  called  the  Check  Bank,  which  is  designed 
to  bring  the  benefits  of  the  check-system  more 
easily  to  all  classes  of  the  people,  even  down  to 
their  small,  every-day  payments.1  It  is  a  Stock 
Company,  which  has  entered  into  relations  with 
nearly  all  the  banks  and  bankers  of  the  United 
Kingdom,  and  with  very  many  colonial  and  foreign 
banks,  by  which  check  books  are  furnished  for 
sale  by  the  Check  Bank  through  these  associated 
banks  which  also  agree  to  cash  the  checks,  every 
check  in  which  books  indicates  by  printed  and 
indelible  perforated  notices  upon  the  forms  what 
the  utmost  sum  is  against  which  that  check  can 
be  drawn,  and  the  aggregate  of  these  sums  is  the 
Jorons'  Money  and  the  Mechanism  of  Exchange,  p.  2«0  et  teq 


320  -    POLITICAL  ECONOMY. 

price  of  the  book  less  1^  penny  for  each  check 
in  it,  of  which  the  penny  is  for  the  government 
stamp,  and  the  one-fifth  of  a  penny  for  the  profits 
of  the  Check  Bank.  It  is  a  great  security  against 
fraud  when  every  check  bears  on  its  face  the  ut- 
most amount  for  which  it  can  be  drawn.  If  the 
checks  are  actually  drawn  for  less  sums,  the  bank 
will  give  additional  checks  to  the  amount  of  the 
balance ;  or  the  persons  to  whom  they  are  paid  out 
may  give  back  the  change,  if  drawn  for  the  full 
sum,  and  the  debt  thus  paid  be  less  than  that. 

All  money  received  for  check  books  is  left  in 
the  hands  of  the  bankers  through  whom  they 
are  issued,  or  transferred  to  other  bankers  if 
needed  by  them  to  meet  the  checks  presented. 
The  checks  are  payable  by  any  of  the  associated 
banks  or  bankers.  An  interest  is  paid  to  the 
Check  Bank  on  the  balance  of  deposits  held  by 
these  banks,  and  this,  together  with  one-fifth  of  a 
penny  for  each  check,  is  the  only  source  of  profit 
to  the  Check  Bank.  The  advantage  of  these 
checks  over  the  ordinary  bank-check  is  very  obvi- 
ous. They  have  a  kind  of  generalized  character. 
They  are  very  convenient  for  remittance  by  letter, 
since  they  will  be  cashed  by  almost  any  banker, 
and  are  cheaper  than  Post  Office  orders.  They 
yield  a  certain  revenue  to  government  —  a  penny 
apiece.  Each  check  carries  its  whole  history  along 
with  it. 

The  banks  keep  an  account  with  the  Check 
Bank,  but  are  not  obliged  to  keep  a  separate 


CREDIT.  321 

account  with  the  purchasers  of  check  books, 
which  is  a  great  relief.  Anybody  who  can  write 
can  use  these  books  to  advantage,  they  are  safer 
than  so  much  money,  there  is  no  difficulty  in 
making  payments  in  shopping  or  in  paying  wages 
by  means  of  them.  The  checks  are  drawn  to 
order  and  crossed,  and  are  dangerous  to  meddle 
with  in  a  fraudulent  intent.  The  Check  Bank 
thus  extends  the  use  of  checks  to  a  multitude  of 
small  transactions,  and  relieves  the  other  banks 
from  what  would  otherwise  be  a  great  deal  of 
troublesome  accounting.  The  longer  these  checks 
remain  out  before  presentation  the  more  profitable 
to  the  Check  Bank,  and  their  average  life  has  been 
heretofore  about  ten  days. 

Now,  if  all  checks  had  to  be  carried  separately 
to  a  banker  for  payment,  it  would  take  much 
time  and  involve  much  trouble ;  but  by  a  simple 
arrangement  called  a  Clearing-House,  such  time  and 
trouble  are  spared,  and  checks  are  virtually  paid 
off  without  the  intervention  of  much  money  by 
setting  them  off  one  against  another.  The  London 
Bankers'  Clearing-House  was  established  in  1775 ; 
in  1864,  the  Bank  of  England  was  admitted  to  it, 
c:id  since  then,  the  clearing-house  itself,  and  all 
the  bankers  and  firms  using  it,  have  accounts  with 
the  Bank  of  England,  and  the  balances  formerly 
settled  by  money  are  now  settled  by  simple  bank 
transfers  of  account  in  the  books  of  that  great 
Bank  without  the  use  of  one  penny  of  money. 

The  average  daily  clearings  at  the  London  Bank 


§22  POLITICAL   ECONOMY. 

ers'  Clearing-House  amount  to  about  .£20,000,000, 
which  if  paid  in  gold  coin  would  weigh  about  157 
tons,  and  would  require  about  eighty  horses  to 
carry  it,  and  if  paid  in  silver  would  weigh  more 
than  2,500  tons.  The  annual  clearings  at  that 
establishment  are  now  about  .£6,000.000.000,  and 
there  are  besides  many  other  clearing-houses  in 
Great  Britain.  The  New  York  clearing-house 
was  established  in  1853,  and  its  clearings,  though 
formerly  greater,  are  now  just  about  equal  in 
amount  to  those  of  the  London  establishment. 

I  will  describe,  in  general,  the  New  York  clear- 
ings, premising,  that  the  principle  is  the  same, 
though  the  details  may  be  different,  in  all  other 
clearing-houses.  Business-men  in  New  York  usual- 
ly pass  in  to  their  bankers  as  a  deposit  all  the 
checks  they  have  received  in  the  course  of  a  busi- 
ness day.  They  might,  by  indorsement,  if  they 
chose,  use  these  checks  to  make  their  own  pay- 
ments with,  but  it  is  now  rather  the  custom  in 
business  towns  for  each  man  to  draw  his  own  check 
to  make  payments  with,  and  to  pass  in  the  checks 
he  receives  to  his  banker.  There  are  59  clearing- 
banks  in  New  York  city.  Each  of  these  banks 
sorts  out  every  day  the  checks  it  has  received 
drawn  on  each  of  the  other  banks  into  separate 
parcels  ready  for  the  clearing.  Each  bank  has, 
therefore,  to  deliver  58  parcels,  which,  represent 
the  property  of  that  bank,  and  are  a  claim  upon 
the  other  banks,  and  to  receive  58  parcels,  which 
represent  the  property  of  other  banks,  and  are  a 
claim  upon  it. 


CREDIT.  £2£ 

Before  10  o'clock  in  the  morning,  59  messen- 
gers, having  each  58  parcels  to  deliver,  appear  at 
the  clearing-house,  each  reporting  at  once  to  the 
Manager  for  record  the  amount  of  exchange  he 
has  brought,  which  is  entered  of  course  as  credit 
to  his  bank,  and  then  all  take  their  positions  in 
order  in  front  of  the  59  desks,  behind  which  sit  59 
clerks,  each  representing  one  of  the  banks.1  Each 
messenger  stands  opposite  the  desk  of  his  own 
bank,  with  his  parcels  already  arranged  in  the 
exact  order  of  the  bank-desks  before  him.  Each 
clerk  inside  his  desk  has  a  sheet  containing  the 
names  of  all  the  banks  arranged  in  the  same  order, 
with  the  amounts  carried  out  which  his  messenger 
has  just  brought.  These  are  entered  in  his  credit- 
column.  Each  messenger  carries  also  a  slip  ready 
to  be  delivered  with  each  parcel  to  each  clerk,  on 
which  is  entered  the  amount  of  exchange  he  now 
brings  to  each  bank.  The  amount  brought  to  each 
bank  is  debit  to  that  bank,  just  as  the  amount 
brought  by  each  bank  is  credit  to  that  bank. 

At  a  given  signal  from  the  manager,  each  mes- 
senger steps  forward  to  the  next  desk,  delivers  his 
parcel  to  the  clerk  behind  it,  and  also  the  slip  that 
goes  with  it,  which  latter  the  clerk  signs  with  his 
initials  and  hands  back  to  the  messenger  as  hia 
voucher  for  the  delivery  ;  and  then  each  advances 
to  the  next  desk  —  the  whole  cue  of  messengers 
moving  in  order  —  at  which  precisely  the  same 

i  I  witnessed  a  clearing  in  May,  1876,  and  describe  the  procesa 
partly  from  observation. 


324  POLITICAL  ECONOMY. 

things  take  place  as  before ;  and  so  on,  until  the 
circuit  of  the  room  is  made,  and  each  has  reached 
the  starting-point  opposite  the  desk  of  his  own 
bank,  having  delivered  to  each  bank  the  exchange 
he  had  for  that  bank,  and  having  taken  a  receipt 
for  each  delivery.  This  process  takes  about  ten 
minutes ;  at  the  end  of  which  time  each  clerk, 
who  had  on  his  sheet  to  start  with  the  credit  due 
his  bank,  has  now  in  his  possession  the  data  to 
calculate  the  debit  of  his  bank.  He  enters  on  his 
sheet  the  amounts  of  exchange  delivered  to  him ; 
and  the  difference  between  the  total  amount  re- 
ceived  and  the  total  amount  brought  by  his  bank  is 
the  balance  due  to  or  from  the  clearing-house  as 
to  that  bank. 

All  the  clerks  then  report  to  the  Manager  the 
amounts  they  have  received ;  and,  as  they  re- 
ported on  first  entering  the  room  the  amounts 
their  messengers  brought,  if  the  two  columns  on 
the  Manager's  proof-sheet  add  up  alike,  no  mis- 
take has  been  made,  and  the  general  clearing  is 
over.  The  clerks  are  allowed  thirty-five  minutes 
after  the  delivery  of  the  exchanges  to  enter,  re- 
port and  prove  their  work.  For  any  errors  dis- 
covered after  that  tune,  fines  are  imposed,  payable 
by  the  banks  whose  clerks  have  erred.  All  the 
banks  receive  a  clearing-house  ticket  of  debit  or 
credit,  and  the  debit  ones  are  required  to  pay 
the  Manager  in  legal-tenders  before  half-past  one 
o'clock ;  and  immediately  after  that  hour  the 
credit  banks  are  paid  respectively  the  sums  due 


CREDIT.  825 

to  them.  The  largest  sum  ever  cleared  in  New 
York  in  one  day  was  on  Nov.  17,  1868,  $206,034,. 
920.51 ;  and  the  smallest  sum  on  Oct.  30,  of  the 
panic  year  1857,  $8,357,394.82. 

7.  Bills  of  Exchange.  A  bill  of  exchange  is  a 
written  instrument  designed  to  secure  the  payment 
of  a  distant  debt  without  the  transmission  of  money. 
Thus,  suppose  A  in  Boston  owes  B  in  New  York 
$1,000,  and  another  party,  C  in  New  York,  owes 
A  in  Boston  a  like  sum ;  it  is  not  necessary  that 
A  should  send  the  money  to  B  to  cancel  his  debt, 
and  C  send  the  money  to  A  for  a  like  purpose ; 
the  two  debts  by  means  of  a  bill  of  exchange  are 
set  off  against  each  other,  and  both  transactions 
are  closed  without  sending  any  money  from  one 
city  to  the  other.  A  draws  a  bill  upon  C,  direct- 
ing him  to  pay  B  $1,000,  and  sends  the  bill  to  B, 
who,  if  the  bill  be  drawn  on  sight,  presents  it  to 
C  for  payment ;  if  on  time,  presents  it  to  C  for 
acceptance,  who  then  pays  it  at  maturity.  An 
acceptance  is  written  upon  the  face  of  a  bill, 
as  an  indorsement  is  upon  its  back.  Checks  are 
really  bills  of  exchange  with  some  differing  legal 
mcidents,  and  a  certified  check  is  an  accepted  bill 
of  exchange,  —  certification  being  an  acknowledg- 
ment of  the  debt,  against  which  the  check  is 
drawn,  written  on  its  face.  A  is  called  the  drawer 
of  the  bill,  C  the  drawee  until  he  has  accepted, 
and  then  the  acceptor,  and  B  is  the  payee. 

It  is  not  often  that  the  same  person,  as  A,  hap- 
to  owe  to  another  person  in  a  distant  place* 


326  POLITICAL  ECONOMY. 

as  B,  exactly  the  same  sum  as  is  owed  him  in  that 
place  by  a  third  person,  as  C;  but  by  two  bills 
of  exchange,  one  drawn  by  each  creditor  on  his 
own  debtor,  and  then  set  off  against  the  other,  the 
barne  advantage  is  gained  as  if  it  always  happened 
so.  Nearly  all  these  bills  come  into  banks  in  the 
way  of  ordinary  business,  either  for  discount  or 
collection,  and  are  adjusted  through  bank  balances. 
The  following  is  the  form  of  an  inland  bill  of  ex- 
change :  — 

$3,000.  THETFOKD,  VT.,  Nov.  29, 1876. 

Four  months  after  date  pay  to  the  order  of  Edward  G.  Smed' 
ley  three  thousand  dollars,  value  received,  and  charge  the  same 
to  account  of  JOHX  BASCOM  &  Co. 

To  B.  E.  PKEEY,  Boston,  Mass. 

Smedley  indorses  on  the  back,  Perry  accepts 
on  the  face,  and  this  bill  is  negotiable.  Sometimes 
bills  are  drawn  to  the  order  of  "ourselves,"  in 
which  case  the  drawers  also  indorse,  and  the  bill 
is  sold  on  the  joint  credit  of  the  drawer  and  ac- 
ceptor. Bills  may  bear  an  indorsement  specifying 
to  whom  payment  is  to  be  made,  or  an  indorse- 
ment in  blank  so-called,  by  which  is  meant  that 
the  payee  or  subsequent  holder  merely  writes  his 
own  name  upon  the  bill,  which  is  equivalent  to 
making  it  payable  to  bearer.  Bills  of  exchange 
are  either  payable  at  sight,  or  after  an  interval 
fixed  in  the  bill  itself;  they  are  either  real,  or 
accommodation,  bills;  and  they  are  either  inland, 
or  foreign,  bills. 

B'lls  having  some  time  to  run  before  maturity 


CREDIT.  327 

are  usually  discounted  by  bankers,  or  other  money- 
lenders, that  is  to  say,  the  payee  sells  the  bill  to 
them,  receiving  the  face  less  interest  for  the  time 
it  has  still  to  run;  and  the  bill  thus  serves  the 
purpose  of  enabling  a  debt  due  from  one  person  to 
become  the  means  of  obtaining  credit  from  another 
person.  * 

What  are  called  accommodation  bills  do  not 
differ  in  form,  or  in  any  other  legal  respect,  from 
what  are  called  real  bills.  The  only  difference  is, 
that  a  real  bill  is  drawn  on  an  actual  debt  owed 
by  the  drawee  to  the  drawer,  while  an  accommo- 
dation bill  is  drawn  on  what  the  drawee  agrees 
shall  be  regarded  as  a  debt  from  him  to  the  drawer; 
in  other  words,  a  real  bill  is  drawn  on  the  strength 
of  a  past  transaction,  namely,  the  actual  sale  of 
some  value  by  the  drawer  to  the  drawee,  while  an 
accommodation  bill  is  drawn  on  the  strength  of 
a  future  transaction,  namely,  the  promise  of  tho 
drawee  to  act  in  relation  to  that  bill  as  if  he  owed 
the  drawer.  There  has  been  an  unreasoning  pre- 
judice against  accommodation  bills,  as  if  they  were 
a  kind  of  counterfeit  coin,  and  as  if  the  real  bill 
were  safer  because  property  has  previously  passed 
from  drawer  to  drawee.  The  fact  that  property 
has  passed  is  no  security  for  the  bill  drawn  on 
the  debt  thereby  incurred,  because  the  bill  gives 
nc  claim  to  that  property,  which  is  already  beyond 
reach,  but  the  bill  itself  is  a  piece  of  pure  credit 
Dased  on  the  good  faith  of  all  the  names  upon  it. 
In  point  of  security  there  is  no  distinction  at  all 


328  POLITICAL  ECONOMY. 

between  real  and  accommodation  bills,  since  they 
equally  constitute  a  charge  upon  the  whole  estates 
of  the  signers ;  nevertheless,  bankers  properly 
prefer  to  buy  real  bills,  because  they  thus  more 
directly  assist  in  the  transfer  of  commodities  from 
place  to  place,  and  especially  because  real  bills 
cannot  exceed  in  number  the  transactions  already 
actually  had,  while  accommodation  bills  may  be 
multiplied  indefinitely  for  purposes  of  speculation. 
Some  accommodation  bills  are  just  as  good  as  any 
real  bills  can  be ;  —  it  depends  upon  the  names, 
and  the  kind  of  business  done  by  the  wearers  of 
the  names. 

Foreign  bills  of  exchange  mediate  sales  between 
countries,  just  as  inland  bills  do  between  different 
places  in  the  same  country,  without  much  trans- 
mission of  money  either  way.  They  are  a  won- 
derful sign  of  civilization.  New  York  dealers  are 
constantly  sending  goods  to  London,  and  London 
dealers  are  constantly  sending  goods  to  New  York ; 
for  what  they  send  to  London,  New  York  firms 
draw  bills  on  the  parties  to  whom  the  goods  are 
consigned ;  and,  similarly,  for  what  they  send  to 
New  York,  London  firms  draw  bills  on  New  York 
parties.  Thus  bills  on  London,  that  is,  on  Eng- 
lish debtors,  can  always  be  had  in  New  York  by 
those  who  have  made  purchases  in  London  and 
wish  to  remit  value  to  liquidate  those  purchases ; 
and  bills,  on  New  York,  that  is,  on  American  debt- 
ors, can  always  be  had  in  London  by  those  who 
have  made  purchases  in  New  York  and  wish  to 
remit  for  them. 


CREDIT.  829 

A  class  of  dealers  have  sprung  up  in  New  York 
and  London,  and  in  all  other  commercial  towns, 
who  find  it  a  profitable  business  to  buy  up  these 
bills  from  those  who  can  draw  them,  and  sell  them 
again  to  those  who  wish  to  remit  them.  These 
dealers  in  foreign  bills  of  exchange  are  bankers* 
inasmuch  as  they  buy  and  sell  credits ;  and  it  is 
very  plain  that  the  law  of  supply  and  demand 
applies  to  these  bills  in  any  place  where  they  are 
an  article  of  traffic.  If  more  bills  than  usual 
are  drawn  and  offered  for  sale  in  New  York, 
other  things  being  as  before,  they  will  fetch  a 
less  price,  and  vice  versa;  and  my  readers  can 
understand  very  easily  what  is  meant  by  the  par 
of  international  exchanges. 

If  all  the  bills  drawn  in  New  York  on  London  are 
readily  bought  at  their  face  value  (minus  interest  for 
the  time  they  have  to  run)  by  those  who  wish  to 
make  remittances  to  London,  and  at  the  same  time 
bills  drawn  in  London  on  New  York  are  taken  up 
at  the  same  rate  by  those  making  remittances  to 
New  York,  it  shows  a  substantial  equality  in  the 
mutual  debts  of  those  places,  and  the  exchange  is 
said  to  be  at  par.  This  implies,  of  course,  that 
there  is  a  well-understood  relation  between  the 
value  of  the  pound  sterling  and  the  dollar,  which 
is,  so  long  as  both  coinages  remain  unchanged, 
84.8665  to  <£!.  But  it  rarely  happens  that  ex- 
change between  New  York  and  London  is  exact- 
ly at  par ;  and  exchange  is  said  to  be  in  favor  of 
New  York,  and  against  London  whenever  bills  on 


330  POLITICAL  ECONOMY. 

London  will  not  bring  in  New  York  their  full  par 
value  less  interest.     This  is  the  case  oftentimes. 

If  New  York  has  sold  more  value  to  London,  01 
tc  parties  (no  matter  where  they  live)  who  allow 
New  York  to  draw  on  London  for  their  pay,  than 
London  has  sold  to  New  York,  or  to  parties  (no 
matter  where  they  live)  who  must  remit  the  pay 
from  New  York,  it  is  plain  that  more  bills  on 
London  will  be  offered  in  New  York  than  will  be 
readily  taken  up  at  full  value  by  those  who  have 
remittances  to  make  to  London.  The  competition 
among  the  sellers  of  bills  will  lower  their  price, 
since  there  is  not  an  equal  eagerness  among  the 
buyers  of  bills  ;  in  other  words,  the  supply  is 
greater  than  the  demand,  and  the  price  goes  down 
of  course.  New  York  can  pay  what  debts  she  has 
to  London  easily,  for  she  can  buy  good  bills  below 
par.  Exchange  is  in  her  favor.  More  value  is 
due  to  her  than  from  her  to  London.  For  the 
same  reason  that  this  is  so,  bills  on  New  York  in 
London  will  be  above  par.  London  cannot  pay 
the  debts  she  has  contracted  to  New  York  so  easily. 
Exchange  is  against  her.  But  now  notice  what 
follows  from  this. 

Because  bills  of  exchange  on  New  York  are  now 
worth  more  than  par  in  London,  say  101,  there  is 
a  direct  encouragement  to  London  parties  to  send 
values  to  New  York,  because  on  every  cargo  sent 
they  can  draw  bills  which  can  be  sold  at  a  premium, 
that  is,  above  par  ;  and  at  the  same  time,  there  is 
a  direct  discouragement  to  New  York  to  send  more 


CBEDIT.  831 

values  to  London,  because  the  bills  drawn  on  the 
values  sent  will  only  bring,  say  99.  The  place,  in 
whose  favor  the  exchange  is,  exports  with  lessened 
prof  ts  to  the  place  against  which  the  exchange  has 
turned  ;  and  the  unfortunate  party,  which  has  sold 
less  in  the  past,  is  stimulated,  in  very  consequence 
cf  that,  to  sell  more  in  the  present ;  and  the  fortu- 
nate party,  which  has  sold  more  in  the  past,  is 
unfortunate  in  this,  that  it  cannot  sell  any  thing 
at  present  for  its  full  value.  These  simple  facts 
tend  powerfully  to  bring  the  exchanges  back  to 
par  again.  So  every  thing  tends  to  right  itself 
in  this  wondrous  world  of  values. 

Here  is  a  magnificently  comprehensive  law, 
which  vindicates  Nature's  right  to  reign  in  the 
domain  of  exchange.  If,  however,  in  spite  of 
this  law,  the  exchange  continues  to  be  obstinately 
against  a  country,  it  only  shows,  provided  the 
money  of  that  country  be  sound,  that  it  has 
incurred  credit-obligations  beyond  the  power  of 
its  ordinary  exports  to  cancel,  and  that  there 
must  be  an  export  of  gold  to  pay  off  the  old 
scores,  and  a  more  prudent  method  of  purchas- 
ing in  the  future.  Gold  goes  in  this  way  from 
one  country  to  another  to  pay  off  balances,  wliich 
ordinal y  bills  can  no  longer  adjust;  but,  it  is  im- 
portant to  notice,  that  if  for  any  reason  the  differ- 
ence in  the  exchanges  be  sufficient  to  cover  the 
cost  of  the  transmission  of  gold,  gold  will  go  freely 
from  the  country  against  which  the  exchanges 
liave  turned,  and  bills  will  be  drawn  upon  that,  a* 


332  POLITICAL  ECONOMY. 

upon  common  merchandise,  and  sold  at  a  premium, 
A  decidedly  higher  rate  of  discount  in  the  neigh- 
boring countries  will  carry  out  gold ;  a  decidedly 
adverse  exchange  will  carry  out  gold ;  and  other 
exports  will  be  helped  to  go  out  from  such  a  coun- 
try by  means  of  the  premium  on  the  bills  drawn 
upon  such  exports. 

Bills  drawn  by  and  "upon  well-known  bankers 
have  naturally  a  better  credit  than  ordinary  com- 
mercial bills,  the  names  upon  which  are  less  widely 
known.  Accordingly,  this  business  of  foreign 
exchange  is  falling  more  and  more  into  the  hands 
of  bankers  in  this  way :  —  Persons  sending  cargoes 
of  cotton,  say  to  Liverpool,  arrange  through  their 
bankers  to  have  the  proceeds  put  to  their  bankers' 
credit  in  London,  and  then  the  bankers  draw  bills 
on  London,  which  will  bring  a  higher  price  in  New 
York  than  a  mere  commercial  bill  will  bring,  be- 
cause a  remitter  may  prefer  a  bill  of  higher  credit 
even  though  it  cost  him  more,  since  he  can  buy 
goods  abroad  with  such  a  bill  with  less  question 
than  with  a  commercial  bill.  Commercial  bills  are 
still  bought  and  sold  in  every  commercial  town,  but 
bankers'  bills  are  more  or  less  taking  their  place ; 
and  there  is  a  strong  tendency  to  make  London 
the  settling-place  of  the  world's  transactions  by 
means  of  bills  drawn  on  and  by  London  bankers, 
which  has  come  about  partly  from  the  commercial 
prominence  of  England,  partly  from  excellent 
banking  customs  there,  but  mainly  because  an 
immense  mass  of  cheap  loanable  capital  exists 


CREDIT.  333 

there.  Interest  is  at  least  two  per  cent  less  in 
London  than  in  New  York,  so  that  a  trader  who 
can  get  credit  there,  that  is,  leave  to  draw  on  a 
banker,  virtually  borrows  capital  at  London  rates 
of  interest,  and  makes  his  transactions  to  that 
extent  more  profitable.  Instead  of  first  depositing 
money  in  London,  he  gets  a  credit  there,  and  after- 
ward makes  remittances  to  keep  the  banker  good 
who  accepts  and  pays  his  bills. 

8.  Circular  Letters  of  Credit.  These  are  of 
great  convenience  to  travellers.  They  are  issued 
by  bankers  of  world-wide  repute  to  their  corre- 
spondents in  foreign  countries,  directing  each  of 
them  to  pay  to  the  person  named  in  the  letter 
such  sum  as  may  suit  his  convenience  at  that  time 
and  place,  the  aggregate  of  which  sums  is  not  to 
exceed  the  limit  mentioned  in  the  letter  itself. 
As  each  sum  paid  is  recorded  on  the  letter  by  the 
banker  paying,  there  is  no  danger  of  overdrawing. 
To  carry  such  a  letter  abroad  is  much  better  than 
to  carry  the  money ;  because,  in  the  first  place, 
money  can  be  had  by  means  of  it  in  all  the  princi- 
pal cities  of  the  world  in  just  such  sums  as  are 
needed ;  in  the  second  place,  persons  buying  such 
credit  have  to  pay  for  no  more  of  it  than  they 
actually  use ;  in  the  third  place,  the  letter  is  avail- 
able for  no  one  else  than  the  person  named  in  it, 
whose  signature  authenticates  it,  and  so  is  not 
liable  to  be  stolen,  though  it  may  be  lost ;  and  in 
the  fourth  place,  as  respects  parties  in  good  credit, 
the  money  need  not  be  deposited  with  the  banker 
at  home  any  faster  than  it  is  called  for  abroad. 


334  POLITICAL  ECONOMY. 

9.  Cash  Credits.  This  form  of  credit  was  in- 
vented in  Scotland  about  one  hundred  and  fifty 
years  ago,  and,  so  far  as  I  know,  its  operations  are 
still  confined  to  that  country.  The  Scottish  banks 
have  several  peculiarities  as  compared  with  those 
of  England  and  the  United  States.  In  the  first 
place,  there  are  but  11  independent  banks  in  all 
Scotland,  but  each  of  these  has  on  the  average  78 
branches,  the  one  having  the  fewest  has  19  and 
the  one  having  the  most  has  125  branches,  so  that 
almost  every  village  in  the  country  is  provided 
with  banking  facilities,  and  these  under  circum- 
stances most  favorable  to  the  credit  of  the  banks 
and  the  profit  of  the  people,  because  branch  banks 
have  all  the  credit  of  the  central  institution  to  fall 
back  upon  and  are  subject  to  constant  supervision 
and  rectification  if  in  any  respect  they  go  astray. 
This  ramification  of  a  single  bank  into  various 
parts  of  the  country,  the  smallness  of  the  country 
itself,  and  the  national  characteristic  of  the  Scotch 
hinted  at  and  encouraged  in  the  lines  of  Burns,  — 

"  But  keek  through  every  ither  man 
Wi'  sharpened,  sly  inspection," 

are  favorable  to  a  minute  knowledge  of  the 
character  and  credit  of  individuals  on  the  part 
of  any  bank. 

In  the  second  place,  the  Scottish  banks,  but 
not  the  English,  are  allowed  to  issue  XI  notes, 
an:  these  are  in  universal  use  among  the  people, 
and  the  banks  that  sell  Cash  Credits  pay  out  for 


CREDIT.  885 

this  purpose  their  own  notes  exclusively.  In  the 
third  place,  such  is  the  organization  of  the  Scctcb 
banks,  and  such  has  always  been  their  excellent 
management,  that  many  of  them  have  at  all  times 
a  surplus  of  credit  to  sell,  that  is,  when  they  have 
discounted  all  the  good  paper  offered,  they  still 
luve  resources  for  further  operations  in  credit. 

Under  the^e  circumstances  they  have  fully  de- 
\  eloped  the  system  of  Ca^h  Credits,  which  allows 
any  man  of  good  character,  who  has  a  reasonable 
prospect  of  succeeding  in  business,  and  who  can 
find  two  or  three  friends  of  good  standing  to 
vouch  in  general  for  his  accounts,  to  open  an  ac- 
count with  the  bank  without  any  previous  depos- 
it, to  draw  out  and  pay  in  on  that  account  just 
as  if  he  had  deposits,  and  to  be  charged  interest 
only  on  the.  balance  to  his  debit.  As  this  interest  is 
less  than  the  discount  would  be  for  an  account  of 
equal  size,  cash  credits  are  less  profitable  to  the 
banks  than  the  discounting  of  paper,  but  more 
profitable  than  to  let  any  of  their  funds  lie  idle ; 
and  at  the  same  time,  the  system  affords  help  to 
every  deserving  young  man  who  needs  it.  Multi- 
tudes of  Scotchmen  have  risen  by  means  of  so 
slight  a  stepping-stone  as  this  to  the  high  places 
of  opulence. 

The  banks  usually  advance  in  this  way  but  a 
m  >derate  sum,  say  from  £100  to  £  1,000,  but  a* 
thi.s  is  not  a  dead  loan,  but  a  living  account  con- 
stantly Dperated  upon  by  paying  in  and  draw- 
ing out,  instances  are  given  of  operations  to  the 


836  POLITICAL  ECONOMY. 

amount  of  .£50,000  in  a  single  week  on  the  strength 
of  a  cash  credit  of  £  1,000.  The  persona  who 
guarantee  a  young  man's  account  are  called  cau- 
tioners in  the  Scotch  law,  and  are  of  course 
interested  in  his  success,  are  ready  to  assist  liini 
with  their  counsel,  keep  a  watchful  eye  on  his 
business  proceedings,  have  the  right  to  inspect  his 
bank  account  at  all  times,  and  to  stop  it  at  any 
time  if  any  thing  is  wrong ;  and  it  scarcely  needs 
to  be  added,  that,  under  all  these  circumstances 
taken  together,  the  national  custom  of  cash  credits 
has  been  a  great  conservator  of  character,  and  a 
quick  stimulator  of  prosperity,  in  Scotland. 

These  nine  are  the  principal  forms  of  the  instru- 
ments of  credit ;  and  we  will  now  notice  that 
credits  are  practically  extinguished  in  three  ways ; 
—  first,  by  a  payment  of  coin-money,  which  puts 
a  commodity  in  the  place  of  the  credit,  and  of 
course  extinguishes  the  right  to  demand ;  second, 
by  renewal,  that  is,  taking  a  new  credit  in  lieu  of 
the  old  one,  as  when  I  accept  a  check  in  payment 
of  a  debt ;  and  third,  and  chiefly,  by  set-off,  as  *u 
book-accounts  and  at  the  clearing-house,  because 
a  mutual  release  from  debt  is  a  mutual  payment 
of  debt.  Credit,  in  most  cases,  is  like  a  circle, 
which  returns  perpetually  into  itself. 

The  advantages  of  credit  have  been,  perhaps, 
sufficiently  indicated  already.  They  may  be 
classified  under  four  general  heads :  —  First,  credit 
usually  passes  existing  capital  from  hands  which 
are  less  to  hands  which  are  more  able  to  use  it  pro- 


CREDIT.  837 

ductively.  Those  best  able  to  make  capital  tell 
are  generally  those  most  desirous  to  obtain  it,  and 
frequently  those  best  able  to  offer  good  security 
for  it.  Credit  is  the  channel  through  which  capi  • 
tal  goes  from  the  hands  of  the  idle,  the  aged, 
those  indisposed  and  those  incompetent  to  use  it 
productively,  into  competently  productive  hands. 
Joint-stock  companies  gather  up  the  driblets  of 
unoccupied  capital  here  and  there,  and,  combining 
them,  enter  upon  paths  of  profitable  production, 
which  individual  enterprise  cannot  tread.  Sav- 
ings-banks receive  the  surplus  earnings  of  the 
poor,  and,  paying  a  fair  interest  on  each  deposit, 
loan  out  the  aggregate  at  a  higher  rate  on  choice 
securities,  thus  stimulating  frugality  in  a  wide 
circle  of  depositors,  and  also  aiding  production  by 
opportune  loans  to  the  best  class  of  borrowers. 
Sound  life-insurance  companies  illustrate  the  bene- 
fits of  credit  in  a  gratifying  light,  and,  by  elevat- 
ing and  widening  the  views  of  men,  tend  to  make 
them  better  producers  and  better  citizens.  Banks, 
as  well  in  their  capital  stock,  as  in  their  deposits 
and  discounts,  operate  to  put  capital  where  it  will 
do  the  most  good. 

Second,  credit  affords  amazing  facilities  for  ad- 
justing the  accounts  of  the  world's  commerce.  Billa 
of  exchange  b  >th  inland  and  foreign,  checks,  tho 
clearing-house,  bankers'  drafts,  and  travellers' 
credits,  all  facilitate  settlements.  The  great  prin- 
ciple of  settlement  is  SET-OFF,  or  a  mutual  release 
from  debts  ;  but  also,  the  creation  of  one  de\»t  if 


g38  POLITICAL  ECONOMY. 

often  at  the  same  moment  the  extinction  of  an- 
other. 

Third,  credit  dispenses  with  the  use  of  a  great 
deal  of  expensive  metallic  money.  Some  metallic 
money  there  must  always  be,  in  order  to  furnish 
the  denominations  of  value,  in  order  to  afford  the 
basis  of  credit,  and  in  order  to  settle  up  the  bal- 
ances of  credit-exchanges;  but  credit  can  take 
the  place  of  money  to  an  extent  never  yet  real- 
ized, even  in  Scotland ;  and  this  use  and  extension 
of  credit  are  economizing  of  expense ;  less  coin  is 
needful  ;  London  settlements,  for  example,  are 
made  first  at  the  clearing-house,  and  then  the  bal- 
ances cleared  at  the  Bank  of  England  without 
any  money  at  all. 

Fourth,  credit  creates  a  new  capital.  It  cannot 
do  this  indefinitely,  but  it  does  it  actually. 
Besides  all  the  commodities  in  the  world,  and  all 
the  personal  services  ready  to  be  exchanged,  there 
is  a  body  of  credits  with  which  purchases  can  be 
made.  Besides  the  past,  and  the  present,  the- 
future  can  be  made  to  a  limited  degree  to  pay 
tribute  to  exchanges. 

On  the  other  hand,  there  are  some  disadvan- 
tages connected  with  the  use  of  credit.  Some- 
times by  means  of  credit,  particularly  book- 
accounts,  capital  steals  out  of  the  hands  of  the 
enterprising  and  productive  citizen  into  the  hands 
of  indolent  and  unproductive  consumers.  This 
is  a  loss  not  only  to  the  dealer  but  also  to  the 
community,  inasmuch  as  bad  debts  in  the  accounts 


CREDIT. 

of  some  customers  have  to  be  made  up  for  in  part 
by  more  onerous  terms  in  the  accounts  of  other 
customers.  Long  credits  are  not  to  be  commend- 
ed except  as  given  to  governments,  certain  rail- 
roads, and  possibly  some  other  parties,  for  whom 
the  fuciire  is  not  likely  to  have  reverses  in  store 
For,  it  must  always  be  remembered,  that  there  are 
more  uncertainties  connected  with  credits  than 
with  material  commodities  and  personal  services, 
since  the  future  is  more  indeterminable  than  the 
past  and  present.  In  a  different  sense  from  that 
in  which  he  has  used  them,  we  may  quote  the 
lines  of  the  good  Whittier ;  — 

"  We  know  not  what  the  future  hath 
Of  marvel  or  surprise." 

Also,  credits  may  be  used  in  such  manner  as  to 
bring  about  commercial  crises.  It  is  still  a  dis- 
puted point,  whether  the  use  of  pure  credits,  not 
to  speak  now  of  credit-money,  tends  to  raise  the 
scale  o£  general  prices.  Whether  it  does  so  or 
not  depends  on  the  further  question,  whether  the 
demand  for  things  offered  for  sale  is  more  inten- 
sified by  credit  facilities  in  buying  them  than  their 
supply  is  increased  by  credit  facilities  in  produ- 
cing them.  We  may  be  absolutely  sure  that  the 
law  of  supply  and  demand  governs  all  prices. 
Demand  is  the  desire  to  purchase  coupled  with  the 
power  to  purchase.  Credit  affords  such  facilities 
for  buying,  that  it  is  certain  more  is  bought  by 
almost  everybody  than  would  be  bought  under 


340  POLITICAL  ECONOMY. 

an  absolute  system  of  cash  payments.  It  is  also 
certain  that  salable  things  of  every  kind  are 
brought  more  easily  and  abundantly  to  the  market 
through  the  facilities  credit  gives  to  production. 

Whether  demand  or  supply  be  the  more  stimu- 
lated by  credit  is  a  delicate  and  difficult  question, 
and  on  its  solution  depends  the  inquiry  whether 
general  prices  are  raised  by  credit ;  but  however 
those  questions  may  be  decided,  it  is  pretty  clear 
that  commercial  crises  have  their  rise  in  disordered 
credits,  and  that  the  collapse  is  caused  either  by 
the  failure  of  certain  parties  to  meet  their  matured 
credit-paper  with  immediate  settlement,  or  by  an 
apprehension  of  such  failure.  In  times  of  confi- 
dence and  prosperity  various  forms  of  credit-paper 
are  multiplied;  in  times  of  over-confidence  and 
speculation  the  volume  of  such  paper  is  unduly 
increased,  and  the  character  of  some  of  it  insuffi- 
ciently scrutinized ;  then  come  the  beginnings  of 
distrust ;  then  follows  a  loss  of  confidence  ;  credit 
is  much  less  freely  given  than  before ;  some  par- 
•ties  whose  debts  are  maturing  find  it  impossible  to 
provide  an  acceptable  set-off,  or  payments  in  cash ; 
their  failure  may  precipitate  the  failure  of  others 
their  creditors,  at  any  rate,  it  causes  consternation 
and  a  further  suspension  of  credit;  next  comes 
the  general  crash,  unless  some  central  power,  like 
the  Bank  of  England,  can  offer  unbounded  credit 
to  all  solvent  parties ;  and  then  succeeds  a  period 
of  stagnation  and  distress.  Such  crises,  more  01 
less  intensified  however  by  the  action  of  credib 


CREDIT.  841 

money,  swept  over  this  country  in  1837,  again  in 
1857,  and  again  in  1873. 

We  conclude,  then,  that  Credit  is  good ;  but  it 
requires  general  caution  and  strong  control  to  keep 
it  from  becoming  evil. 

We  may  throw  into  the  following  summary  the 
substance  of  the  discussions  in  this  chapter :  — 

1.  Credits  are  RIGHTS  bought  and  sold  just  like 
commodities  and   services,  and   therefore   claim   an 
equal  place  with  these  in  Political  Economy. 

2.  Credits  accordingly  round  out  in  a  wondrous 
way  the  THREEFOLD  world  of  values. 

3.  Economics    and   morals   touch   each    other  in 
credits,   which    have    their  foundation    in    human 
CHARACTER. 

4.  Credits  put  even  the  FUTURE  under  contribu- 
tion for  productive  purposes,  and  consequently  must 
take  a  share  in  its  uncertainties. 

5.  Credits  minimize  money,  utilize  SET-OFF,  and 
maximize  production. 

6.  Bankers  buy  and  sell  credits,  and  thus  become 

BENEFACTORS. 

7.  Credits  are  LIABLE  to   abuse,  always   involve 
»ome  losses,  often  bring  on   commercial  crises,  and 
sometimes  pile  up  national  debts. 


842  POLITICAL  ECONOMY. 

CHAPTER  VI. 

TAXATION. 

WE  have  now  reached  the  last  stage  in  0111 
journey.  The  end  of  it  is  already  within  view. 
]  f  parts  of  the  road  have  seemed  dry  and  dusty  to 
my  fellow-travellers,  the  direction  of  it  at  least 
has  been  straight  forward  over  hill  and  dale,  and 
points  of  view  have  certainly  been  gained  here 
and  there  displaying  the  wonderful  nature  of  man, 
and  the  still  more  wonderful  providence  of  God. 
I  still  bespeak  the  patience  of  those  who  have 
gone  with  me  thus  far,  both  because  the  journey 
is  now  near  its  completion,  and  especially  because 
this  last  stretch  of  it  promises  the  most  instructive 
prospects  of  all. 

It  might  seem  at  first  sight  as  if  Taxation  were 
not  properly  a  topic  of  Political  Economy,  inas- 
much as  that  is  a  field  of  voluntary  action,  while 
it  is  scarcely  voluntary  with  the  individual  citizen 
or  subject  whether  he  pay  taxes  or  not.  But,  on 
a  closer  view,  it  becomes  apparent,  that  the  people 
do  really  tax  themselves,  either  directly  or  indi- 
rectly ;  that  they  organize  governments  primarily 
for  the  security  of  person  and  property  ;  that  the 
origin  and  increase  of  property  depend  upon  the 
exercise  of  the  rights  of  exchange,  which  govern- 
ment is  instituted  in  part  to  make  secure;  that 
taxes  are  really  a  return  for  services  rendered. 


TAXATION.  343 

and  muy  be  justified  on  the  strict  principles  of 
exchange  ;  that  government,  while  it  has  other 
important  functions,  renders,  by  its  laws,  courts, 
and  officers,  by  the  force  which  it  is  at  all  times 
ready  to  exert  in  behalf  of  any  citizen  or  the 
whole  society  when  threatened  with  evil  in  per- 
son or  property,  services  on  the  principle  of  the 
division  of  labor,  one  set  of  agents  devoting  them- 
selves to  that  work  ;  and  that  the  practical  rules 
of  taxation  at  any  rate,  whether  the  fundamental 
reasons  for  it  or  not,  must  be  found  within  the 
purview  of  our  science. 

We  inquire,  accordingly,  into  the  SOURCE,  out 
of  which  taxes  must  be  paid ;  into  the  MODES,  in 
accordance  with  which  taxes  are  actually  raised  ; 
and  into  the  guiding  PRINCIPLES,  under  which  all 
taxes  ought  to  be  levied. 

It  is  very  clear,  in  the  first  place,  that  all  taxes 
have  to  be  paid  out  of  the  gains  of  exchanges.  In- 
deed, there  is  no  other  possible  source  out  of 
which  they  can  be  paid.  Taxes  are  collected  in 
money;  and  the  only  way,  gifts  and  pi  under  asidr, 
both  of  which  are  out  of  the  question,  by  which 
any  man  gets  money  to  pay  his  taxes  with,  is 
through  exchange  of  some  sort  or  other.  Every- 
body must  pay  his  taxes  out  of  income;  the 
sources  of  income  are  only  three,  namely,  wages, 
profits,  and  rents  ;  and  each  of  these  is  a  result  of 
exchanges.  Even  the  retired  merchant,  who  lives 
tm  the  interest  of  his  money,  and  pays  his  taxes 
out  of  interest,  must  at  least  loan  out  his  money 


844  POLITICAL  ECONOMY. 

I 

to  get  the  interest,  —  which  is  an  exchange.  La 
borers  pay  their  taxes  out  of  earnings,  capitalists 
theirs  out  of  profits,  real-estate  holders  theirs  out 
of  rents,  —  all  of  them  consequently  out  of  ex- 
changes. 

It  is,  therefore,  alike  for  the  interest  of  the 
government  as  tax-gatherer,  and  for  the  interest 
of  the  people  as  tax-payers,  that  exchanges  should 
be  free.  As  the  only  motive  to  make  exchanges 
is  the  gains  to  be  derived  from  them,  and  as  taxes 
can  only  be  paid  out  of  these  gains,  it  is  very  fool- 
ish as  well  as  unjust  for  a  government  to  prohibit 
exchanges,  or  to  try  to  make  them  more  onerous 
than  they  naturally  are.  The  nation  whose  in- 
ternal and  external  exchanges  are  the  freest  is, 
other  things  being  equal,  necessarily  the  most 
prosperous,  and  pays  its  taxes  the  easiest,  since 
the  reservoir  out  of  which  taxes  are  drawn  becomes 
in  this  way  the  largest,  and  the  ratio  of  taxes  to 
the  whole  gains  of  exchanges  the  smallest.  In 
other  words,  the  interests  of  government,  which 
must  be  maintained  by  taxation,  and  the  interests 
of  the  people,  who  can  only  thrive  by  exchanges, 
are  identical. 

In  the  second  place,  the  modes  in  which  gov- 
ernments practically  levy  their  taxes  are  two, 
namely,  direct  and  indirect.  A  direct  tax  is  levied 
on  the  very  persons  who  are  expected  themselves 
to  pay  it ;  an  indirect  tax  is  demanded  from  one 
person  in  the  expectation  that  he  will  pay  it  pro- 
visionally, but  will  make  himself  good  by  means 


TAXATION.  345 

of  a  higher  price  which  he  in  turn  will  demand 
of  the  next  purchaser  of  the  article  taxed.  Thus 
an  income  tax  is  a  direct  tax,  while  duties  on  im- 
ported goods  are  indirect  taxes.  Both  alike  come 
out  of  the  gains  of  exchanges,  and  are  so  much 
subtracted  from  what  those  gains  would  otherwise 
be ;  but  the  differences  between  them  after  all 
justify  the  distinction  drawn,  and  will  justify  us 
in  studying  each  mode  somewhat  carefully.  Let 
us  begin  with  direct  taxes. 

From  the  nature  of  the  case,  direct  taxes  must 
be  either  on  INCOME  or  EXPENDITURE.  These 
are  personal  to  the  individual,  aud  taxes  on  them 
must  be  borne  by  him,  aud  cannot  be  thrown  off 
upon  others  in  the  same  way  as  indirect  taxes  may 
be.  As  the  difficulty  of  a  tax  on  a  person's  whole 
expenditure  is  much  greater  than  one  on  his  whole 
income,  inasmuch  as  the  items  are  far  more  numer- 
ous and  diffused,  it  is  never  attempted  to  levy  taxes 
on  one's  entire  expenditure,  but  only  on  some  spe- 
cial forms  of  expenditure,  such  as  horses,  carriages, 
watches,  plate,  and  so  on,  kept  for  personal  use. 
The  United  States  have  repeatedly  levied  such 
taxes  as  these,  but  they  have  been  of  short  dura- 
tion, and,  as  such  taxes  do  not  reach  all  persona 
will:  any  fair  degree  of  equality,  they  are  so  far 
forth  objectionable.  There  is  a  better  way  to  tax 
than  to  tax  expenditures  in  any  form. 

But  if  any  tax  on  expenditures  is  selected,  I  am 
much  inclined  to  think  with  Mr.  Mill,  that  a  house- 
tax,  levied  on  the  occupier,  and  not  on  the  owner 


346  POLITICAL  ECONOMY. 

unless  he  be  at  the  same  time  the  occupier,  is  the 
best  form  of  such  a  tax.  Taking  society  at  large, 
the  house  a  man  lives  in  and  its  furniture  are 
probably  the  best  index  attainable  of  the  size  of 
his  general  expenditures.  The  house  and  its  con- 
tents are  open  to  observation  and  current  remai  k  ; 
they  are  that  on  which  persons  rely  more  perhaps 
than  on  any  thing  else  external  for  their  considera- 
tion in  society  and  general  station  in  life  ;  the  tax 
can  be  assessed  with  very  little  trouble  on  the  part 
either  of  the  assessor  or  of  the  occupier ;  and  even 
a  domiciliary  visit  is  scarcely  required,  as  the  house 
may  speak  for  itself  and  its  contents.  On  the  other 
hand,  the  tax  would  not  reach  at  all  that  compara- 
tively large  class  of  persons  who  do  not  keep 
house ;  nor  would  it  reach  with  any  fairness  two 
other  classes,  the  comparatively  rich  who  care 
nothing  about  style,  and  the  comparatively  poor 
who  frequently  affect  style.  On  the  whole,  and 
for  good  reasons,  the  nations  are  looking  away 
from  taxes  on  expenditures. 

It  is  not  so,  however,  with  taxes  on  income. 
For  more  than  thirty  years  the  English  have  found 
their  income  tax  to  be  the  most  uniform,  unfailing, 
expansive  and  manageable  of  all  their  fiscal  expedi- 
ents. Their  rate  has  varied  at  different  times  from 
fourpence  to  sixteen-pence  to  the  pound  of  income. 
1  i  1857,  this  tax  alone  realized  $80,255,000  to  the 
English  exchequer.  The  Germans  have  had  as  yet 
but  a  short  experience  with  an  income  tax,  but  they 
are  now  successfully  using  it  as  one  of  their  meana 


TAXATION.  347 

of  revenue.  The  late  national  income  tax  was 
now  in  this  country,  and  for  certain  reasons  not 
inherent  in  the  nature  of  the  tax  became  unpopu- 
lar in  influential  quarters,  and  was  discontinued 
after  a  few  years'  trial;  but  it  was  productive 
^hile  it  lasted,  yielding,  in  1866,  $60,894,135,  and 
would  have  been  much  more  so,  had  it  been  popu- 
larly regarded  as  a  permanent  and  proper  tax. 

The  beauty  of  an  income  tax  is  its  simplicity 
and  its  harmony  with  the  fundamental  ideas  of 
property  and  of  taxation  itself.  The  sources  of 
income,  as  we  have  seen,  are  only  three ;  a  tolera- 
ble method  of  book-keeping  will  enable  any  man 
to  determine  what  his  aggregate  income  of  tho 
year  has  been ;  it  is  only  a  question  of  net  receipts ; 
and  if  all  other  taxes  were  abolished,  and  it  were 
settled  that  an  income  tax  should  be  the  policy  of 
the  nation,  state,  or  municipality,  it  would  make 
no  difference  when  the  money  was  earned,  when 
the  profits  really  accrued,  or  when  the  rents  became 
actually  due,  the  receipt  of  the  income  within  the 
year  would  mark  the  time  of  its  proper  taxation. 

Besides,  as  all  taxes  must  come  from  the  gain* 
of  exchanges,  it  would  seem  reasonable  that  each 
man's  taxes  should  be  in  exact  proportion  to  the 
sum  of  his  gains  by  exchanges.  I  do  not  think 
that  ;here  can  be  any  other  just  rule  of  taxation. 
It  is  sometimes  said,  that  each  man  should  bo 
taxed  according  to  his  property  ;  but  when  we  come 
to  analyze  this  remark,  it  amounts  to  what  has 
just  now  been  said.  What  is  property  ?  The  old 


348  POLITICAL  ECONOMY. 

Roman  Law  said,  and  said  rightly,  Property  is  any 
thing  which  can  be  bought  and  sold.  The  very  sub- 
stance of  property  is  the  power  and  right  to  render 
services  hi  exchange;  the  test  of  property  is  a  sale ; 
that  which  will  bring  nothing  when  exposed  for  sale 
either  never  was,  or  at  least  is  not  now,  property  ; 
the  right  of  the  government  to  tax  anybody,  con- 
sequently, depends  on  the  question  whether  he  has 
something  to  sell*  or  has  actually  sold  something ; 
and  the  amount  of  the  tax  would  seem  to  be  deter- 
mined by  the  amount  of  the  sales,  just  as  the  abili- 
ty to  pay  the  tax  certainly  hinges  on  the  fact  and 
the  amount  of  the  sales. 

The  farm,  the  foundry,  the  mill,  the  railroad, 
the  real  estate  of  every  name ;  personal  property 
of  every  kind ;  and  personal  acquirements  and 
efforts  of  all  descriptions,  best  appear,  for  the  pur- 
poses of  taxation,  through  the  gains  realized  by 
means  of  them.  If,  for  any  reason,  any  of  these 
forms  of  property  should  become  unproductive, 
taxes  should  cease  to  be  derived  from  them ;  in- 
deed, must  cease  to  be  derived  from  them,  because 
their  owners  can  nc  longer  pay  taxes  by  virtue  of 
them.  If  it  be  objected,  as  it  has  been,  that  lands, 
for  example,  presently  unproductive,  .might  be 
held  untaxed  under  this  principle  for  the  sake  of 
a  prospective  rise  of  price,  I  would  reply,  that 
that  is  no  objection,  that  when  the  lands  are  sold, 
or  rented,  or  otherwise  made  productive,  the  owner 
should  be  taxed  on  that  revenue,  that  it  will  be 
tune  enough  then,  especially  as  me,n  do  not  like 


TAXATION.  349 

fco  hold  unproductive  forms  of  property.  Quick 
property  alone  is  able  to  pay  taxes,  and,  therefore, 
property  should  be  taxed  only  so  far  as  it  is  quick. 

There  is  an  illusion  about  land  and  other  real 
estate  that  needs  to  be  dissipated  before  men  will 
understand  clearly  th2  whole  matter  of  taxation. 
All  property  has  its  limits  as  well  as  its  birth  in 
human  services  exchanged;  without  constant 
watchfulness  and  foresight,  without  constant 
efforts  in  improvements  and  repairs,  every  form 
of  real  estate  will  deteriorate  and  become  unpro- 
ductive. Land  even  in  Great  Britain,  where  land 
is  scarce,  is  worth  only  about  25  years'  rent ;  and 
without  the  exercise  of  intelligence  and  will,  every 
form  of  property  ceases  to  exist.  Therefore  it  is 
right  to  trace  property  for  the  purpose  of  taxation 
to  the  person  of  its  owners,  and  to  make  the 
revenue  they  derive  from  it  the  basis  of  the  claim 
that  they  contribute  to  the  support  of  the  state, 
and  the  size  of  the  revenue  they  derive  from  it 
the  gauge  of  those  contributions. 

It  may  also  be  objected,  that,  under  this  princi- 
ple of  an  exclusive  income  tax,  wages,  the  result 
of  personal  and  professional  exertion,  would  be 
taxed  just  the  same  as  profits  and  rents,  the  result 
of  previously  accumulated  property.  That  con- 
sequence would  certainly  follow;  and  I  cannot 
see  why  it  ought  not  to  follow.  Can  anybody 
give  a  solid  reason  why  wages  should  not  be  taxed 
as  high  as  rents  ?  It  might  be  said,  perhaps,  that 
a  professional  man  earning  a  large  income,  on 


850  POLITICAL  ECONOMY. 

which  taxes  are  paid  the  same  as  on  a  similai 
income  of  a  land-proprietor,  dying,  leaves  to  his 
children  no  further  means  of  support,  while  the 
land-proprietor,  dying,  does  leave  such  means.  I 
admit  that  this  is  so ;  but  then,  the  income  from 
that  land  continues  to  pay  taxes,  while  that  pro- 
fessional income  does  not!  Other  members  of 
the  profession  will  do  the  business  which  the 
former  one  would  have  done  had  he  lived,  and 
they  may  be  made  to  pay  taxes  on  the  income 
from  it.  What  a  man  transmits  to  his  children, 
whether  a  great  name  or  a  great  estate,  has  nothing 
to  do,  as  I  take  it,  with  the  amount  of  taxes  that 
he  ought  to  pay  while  he  lives.  It  seems  to  me, 
accordingly,  that  the  kind  of  activity  by  means  of 
which  a  man  realizes  his  gains,  has  nothing  to  do 
with  the  question  of  his  taxes ;  as  he  must  pay 
his  taxes  out  of  these  gains,  why  should  he  not 
pay  taxes  in  proportion  to  these  gains,  from  what- 
ever source  derived  ? 

As  government  is  instituted  and  supported,  in 
part,  for  the  protection  of  property,  and  as  property 
in  its  ultimate  analysis  is  the  right  of  rendering 
services  for  a  return,  it  is  plain  that  a  demand  for 
taxes  from  individuals  proportionate  to  the  aggre- 
gate of  such  services  of  theirs  is  in  harmony  with 
the  ground  principles  of  taxation.  A  universal 
and  exclusive  income  tax  would  be  just  such  a 
demand.  Besides  this,  such  a  tax  has  a  grand 
advantage  over  all  other  forms  of  taxation  in  that 
it  lias  no  tendency  to  disturb  prices.  Were  there 


TAXATION.  35J 

no  taxation  except  on  incomes,  and  were  the  in- 
comes rightly  rendered,  the  prices  of  every  thing 
bought  and  sold  would  be  just  as  if  there  were  no 
taxes  at  all!  Taxation  would  then  be  like  the 
atmosphere,  pressing  equally  on  all  points  and 
consciously  on  none. 

It  is  through  tricks  wrought  on  prices  that  the 
greatest  injustice  has  been  done  and  suffered  in  this 
country  in  times  past ;  the  depreciated  currency, 
for  example,  raises  some  prices  and  not  others,  and 
some  prices  before  others,  and  thus  distributes  its 
mischiefs  unequally ;  the  "  protective  "  tariff-taxes 
play  fantastic  tricks  with  prices,  raising  some  and 
lowering  others,  thus  working  monstrous  injustice 
on  a  great  scale ;  and  almost  all  forms  of  taxation 
become  unequal  and  unjust  through  their  diverse 
action  on  prices.  But  a  universal  income  tax, 
properly  levied  and  fully  responded  to  by  the 
payers,  would  have  no  influence  at  all  upon  prices, 
could  by  no  possibility  work  essential  injustice, 
and  would  be  certain  to  be  very  productive. 

One  incidental  advantage  of  such  a  tax  in  such 
a  country  as  this  would  be,  that  all  men  would  be 
obliged  to  keep  regular  accounts,  more  orderly 
methods  ,of  business  would  prevail,  each  man 
would  know  better  where  he  himself  stood  and 
\\hom  of  others  it  would  be  safe  to  trust,  failures 
would  be  less  frequent  and  widespread,  and  every 
thing  financial  would  be  more  known  and  above- 
board. 

A  second  incidental  advantage  of  an  exclusive 


352  POLITICAL  ECONOMY. 

income  tax,  and  one  too  of  great  moment,  espe- 
cially in  a  country  organized  as  ours  is,  in  which 
taxes  have  to  be  paid,  first  to  the  local  municipal- 
ity,  second  to  the  state,  and  third  to  the  nation, 
would  be,  that  the  local  government  might  ascer- 
tain the  incomes  once  for  all,  the  state  and  nation 
afterwards  collecting  merely  an  additional  per 
centtfm  for  themselves ;  or  better  still  by  amica- 
ble arrangement,  neither  party  yielding  its  inher- 
ent right  to  tax,  one  set  of  officials  might  ascertain 
and  collect  the  tax  for  all  three  governments  at 
one  and  the  same  tune.  The  vast  economy  of  this 
simple  plan  is  manifest  enough  ;  and  it  is  also  mani- 
fest enough  that  official  jealousies  as  between  the 
governments  would  oppose  its  adoption. 

One  objection  to  an  income  tax  has  been  the 
publicity  resulting  from  it.  This  is  no  objection 
at  all,  inasmuch  as  every  man  who  pays  taxes 
would  seem  to  have  a  right  to  know  that  his  neigh- 
bors are  contributing  to  support  the  government 
pro  rata  with  himself.  In  bearing  up  the  great 
burden  of  government  all  citizens  are  copartners, 
and  in  this  view  each  has  a  right  to  demand  a 
look  into  the  books  of  the  rest.  It  is  only  by 
publicity  and  openness  of  method  and  result,  thp*t 
suspicions  of  unfairness  and  injustice  in  taxation 
can  be  kept  at  rest  among  the  citizens. 

A  second  objection  has  been  commonly  urged, 
that  men  will  not  give  in  a  true  return  of  their 
income.  It  is  true,  that  many  men  will  not  of 
their  own  free  impulse  make  a  true  return,  but 


TAXATION.  853 

they  can  be  made  to  do  so,  as  the  forms  are  per- 
fected, as  fraudulent  returns  are  promptly  pun- 
ished, and  as  the  memory  and  conscience  of  the 
payers  are  quickened  by  the  action  of  a  healthful 
public  opinion  brought  to  bear  through  the  annual 
publication  of  the  list  of  their  returns.  Men  aro 
not  usually  so  isolated  from  each  other,  the  vari- 
ous methods  of  rendering  services  for  a  return  are 
not  so  secret,  as  that  a  man's  neighbors  do  not 
know  pretty  well  the  general  amount  of  his  in- 
come. Then  there  is  the  additional  security  of  a 
solemn  oath,  of  a  fear  of  detection  and  punish- 
ment, of  a  desire  to  maintain  a  good  mercantile 
credit,  and  a  wish  to  stand  well  with  one's  class. 
At  the  very  worst,  it  might  be  said,  that  evasions 
and  fraud  accompany  also  all  other  forms  of  taxa- 
tion. 

An  income  tax  has  not  yet  had  a  fair  trial  in 
this  country ;  special  reasons  made  the  late  law 
obnoxious ;  it  was  enacted  as  a  temporary  expedi- 
ent only,  and  not  as  a  national  experiment ;  but  I 
am  thoroughly  convinced  that  if  the  system  were 
permanently  established  in  lieu  of  all  others,  the 
difficulties  under  it  would  grow  less  and  less  every 
year,  it  would  prove  amply  productive  and  elastic 
for  the  varying  wants  of  the  governments,  and 
would  subject  the  governments  themselves  to  the 
constant  and  healthful  supervision  of  the  tax- 
payers. It  may  be  long  before  we  shall  ever  come 
to  this ;  but  the  truth  remains,  nevertheless,  that 
an  income  tax  is  the  justest  of  all  possible  taxes. 


354  POLITICAL  ECONOMY. 

We  come  now  to  indirect  taxes.  All  of  these 
are  in  effect,  and  most  of  them  are  in  form  also, 
taxes  on  sales.  The  only  way,  in  fact,  in  which 
any  person,  from  whom  a  tax  is  demanded  and  by 
whom  it  is  paid,  can  throw  off  that  tax  upon  some« 
body  else,  is  either  to  sell  the  taxed  article  out- 
right for  a  higher  price  on  account  of  the  tax,  or 
to  make  some  other  exchanges  in  connection  with 
it,  the  terms  of  which  are  more  onerous  to  the 
other  party  by  reason  of  the  tax.  A  tax  on  soda 
fountains,  for  example,  may  be  reimbursed  to  the 
payer  either  by  the  resale  of  the  fountain  itself, 
or  by  a  higher  price  charged  to  the  drinkers  of 
the  beverage,  by  which  the  tax  is  distributed  over 
many  persons  and  much  time.  The  taxes,  by 
means  of  stamps,  on  bank-checks,  liquors,  and 
tobacco,  and  on  railroad,  insurance,  and  gas  com- 
panies, levied  by  the  present  United  States  inter- 
nal revenue  law,  are  indirect  taxes,  whereby  the 
government  gets  in  a  lump  what  is  afterwards  dis- 
tributed over  many  subordinate  exchanges. 

One  advantage  of  indirect  taxes  is,  that  men  pay 
them  as  a  part  of  the  price  of  the  goods  they  buy, 
without  thinking  perhaps  that  it  is  a  tax  they  are 
paying,  and  consequently  without  any  of  the  re- 
pugnance that  is  felt  towards  a  tax-gatherer  who 
comes  with  an  unwelcome  demand.  But,  on  the 
whole,  it  is  doubtless  better  both  for  the  govern- 
ment and  for  the  people  that  men  should  know 
when  they  are  paying  taxes  and  how  much  taxes 
they  pay ;  for,  it  is  a  countervailing  disadvantage 


TAXATION.  355 

of  an  indirect  tax,  that  the  price  of  the  commodi 
ty  is  usually  enhanced  to  an  extent  much  beyond 
the  amount  of  the  tax,  partly  because  the  tax  is  a 
cover  under  which  dealers  may  put  in  an  unreason- 
able demand,  and  partly  because  the  tax,  having 
tc  be  advanced  over  and  over  again  by  intermedi- 
ate, dealers,  profits  accumulate  as  an  element  of 
the  price. 

Tariff-taxes  are  the  most  important  taxes  of  this 
class.  Our  people  paid  to  government  in  customs- 
duties  in  the  year  ended  June  30,  1876,  $148,071,- 
985,  and  the  year  before,  8157,167,722.  They 
paid  in  internal  revenue  to  the  national  govern- 
ment during  the  same  years  respectively  $116,700,- 
732,  and  $110,007,494.  These  were  all  indirect 
taxes ;  and  the  ultimate  buyers  of  the  things  thus 
taxed  paid  a  great  deal  more  in  consequence  of 
the  tax  than  the  government  received  from  it. 
The  net  revenue  of  the  national  government  from 
all  sources,  of  which  these  two  are  the  chief,  was 
in  1870  just  one-third  more  than  in  1876,  namely, 
$411,255,748. 

In  our  third  chapter  on  Commerce,  it  was  laid 
down,  that  tariff-taxes,  in  order  to  be  productive 
and  riot  unjust,  must  be  levied  in  accordance  with 
three  principles,  namely,  first,  on  articles  mainly 
or  wholly  imported  from  abroad,  and  not  also  pro- 
duced at  home  ;  second,  on  as  few  articles  as  will 
produce  the  needed  revenue;  and  third,  at  such 
low  rates  as  shall  not  greatly  lessen  the  importa- 
tion of  the  articles  taxed.  When  levied  in  accord 


356  POLITICAL  ECONOMY. 

ance  with  these  principles,  tariff-taxes  are  a  tolera- 
ble means  of  revenue,  especially  if  different  kinds 
of  taxes  are  adopted  as  between  the  local,  state, 
and  national  governments.  If  the  municipalities 
tax  mainly  real  estate,  and  the  states  tax  mainly 
corporations,  a  rude  result  of  justice  may  be 
reached,  if  the  nation  taxes  mainly  imports  which 
do  not  come  into  competition  with  native  products. 
But  I  have  already  given  reasons  for  believing 
that  an  income  tax  might  be  substituted  for  all 
these  with  great  advantage  to  both  governments 
and  people.  At  any  rate,  the  tariff-taxes  at  pres- 
ent levied  in  this  country  violate  each  of  these 
three  principles,  and  are  as  wrong  in  purpose  a& 
they  are  disastrous  in  practice. 

For  example,  tea  and  coffee  are  not  produced  in 
this  country  at  all,  and  are  almost  universally  used, 
and  therefore  are  just  the  articles  to  bear  a  tariff- 
tax.  The  average  net  imports  of  coffee  into  the 
United  States  for  the  eight  years  1872—79  were 
310,908,438  pounds,  and  the  average  price  of  this 
15.5  cents  a  pound;  if  this  average  importation 
had  borne  a  duty  of  3  cents  a  pound,  which  was 
the  rate  when  the  duty  was  removed  in  1872,  the 
treasury  of  the  United  States  would  have  realized 
$9,327,253.14  a  year  from  this  one  source ;  the  ul- 
timate consumers  of  the  coffee  would  have  paid 
something  more  than  this  sum  in  consequence  of 
the  tax,  because  the  tax  would  have  been  advanced 
two  r»c  three  times  over  before  the  coffee  reached 
their  \ands ;  but  it  is  evident  that  the  tax  would 


TAXATION.  857 

have  raised  the  price  of  nothing  but  the  coffee, 
and  substantially  all  the  people  paid  would  have 
gone  direct  to  the  treasury.  But,  unfortunately, 
there  is  no  tax  at  all  on  coffee,  —  excellent  in  all 
respects  as  such  a  tax  would  be,  —  because  certain 
protectionists  combined  to  repeal  it  in  order  to  keep 
on  the  statute-book  "protective"  taxes  tenfold 
more  onerous.  It  was  a  sop  to  Cerberus.  The 
total  annual  production  of  coffee  throughout  the 
world  is  just  about  1,000,000,000  pounds ;  and  of 
this  the  people  of  Holland  consume  about  18  pounds 
per  capita,  of  Belgium  9  pounds,  of  Norway  8i 
pounds,  of  the  United  States  8  pounds,  of  France 
4  pounds,  of  Germany  3  pounds,  and  of  England 
1  pound,  per  capita. 

For  a  good  many  years  the  importation  of  tea' 
into  this  country  just  about  kept  pace  with  the 
population,  at  the  rate  of  one  pound  for  each  in- 
habitant. Of  late  the  consumption  of  tea  has  been 
increasing  per  capita,  and  is  now  approaching  li 
pounds  apiece.  The  average  net  imports  of  tea 
for  the  eight  years,  1872-79,  were  60,071,875 
pounds,  and  the  average  wholesale  price  of  this 
31.5  cents  per  pound.  If  this  had  borne  a  duty  of 
15  cents  a  pound,  which  was  the  rate  when  the 
tea-duty  was  abolished  in  1872,  the  treasury  would 
have  realized  $9,010,781.25  a  year  from  this  source, 
without  sensibly  burdening  the  people  beyond  the 
burden  of  the  tax  itself.  This  abolition  was  an- 
other purely  protectionist  measure,  and  another  sop 
to  the  triple-headed  guardian  of  the  nether  world. 


858  POLITICAL  ECONOMY. 

The  treasury  actually  lost  in  those  eight  years,  by 
the  repeal  of  these  two  simple  and  unobjectionable 
duties,  $146,704,275.12.  Indeed,  tea  and  coffee 
together  may  easily  be  made  to  bring  into  the 
treasury  $25,000,000  a  year:  four  cents  a  pound 
on  coffee  and  twenty  cents  on  tea  would  be  only 
reasonable  duties,  and  would  raise  that  sum ;  these 
articles  are  in  universal  consumption,  and,  if  there 
are  to  be  tariff-taxes  at  all,  these  are  the  things  to 
bear  them. 

The  consumption  of  cane-sugar  in  the  United 
States  in  the  calendar  year  of  1879  was  743,000 
tons,  — nearly  9  per  cent  more  than  in  1878,  — and 
about  45,000  tons  besides  were  boiled  out  of  molas- 
ses. Add  to  this  the  maple-sugar  consumed,  and 
the  likelihood  is,  that  each  man,  woman,  and  child 
in  the  country  uses  on  the  average  nearly  40 
pounds  of  sugar  a  year.  The  consumption  of 
sugar  in  Great  Britain  is  larger  that  this  per  capita: 
on  an  average  of  27  recent  years  that  consumption 
was  43.82  pounds,  and  of  tea  during  the  same  time 
3.37  pounds.  Now,  a  tariff-tax  on  sugar  is  not  so 
simple  a  matter  as  one  on  tea  or  coffee,  because 
some  cane  and  other  sugars  are  made  in  the  coun- 
try itself,  and  the  price  of  these  will  be  enhanced 
by  a  tariff-tax  on  the  imported  sugar,  and  because 
crude  sugars  in  many  forms  are  imported  to  be  re- 
fined and,  as  it  were,  re-manufactured  here  ;  still, 
sugar  is  such  a  universal  necessity  of  life,  and  the 
part  grown  here  so  small  relatively  to  the  whole 
consumption,  that  a  tariff-tax  on  it  is  entirely 


TAXATION.  S59 

proper,  if  there  be  any  tariff  at  all.  An  average 
of  three  cents  a  pound  on  the  entire  amount  used 
will  bring  in  $50,000,000  a  year.  If  domestic 
sugar  should  ever  come  to  be  a  considerable  part 
of  the  whole  consumption,  then  an  excise  on  that 
part,  corresponding  to  the  tariff-tax  on  the  rest, 
would  prevent  any  injustice  otherwise  flowing 
from  the  tax. 

According  to  our  consul  at  Lyons,  there  were 
18,000,000  pounds  of  silk  produced  in  the  world 
in  1879,  and  its  value  $83,000,000.  Some  of  this 
silk  is  imported  into  this  country,  and  may  well  be 
subject  in  all  its  forms  to  tariff-tuxes  for  revenue ; 
but  care  should  be  taken  in  this,  as  in  every  thing 
else,  that  an  excise  supplement  the  tariff  whenever 
considerable  amounts  of  domestic  goods  are  raised 
in  price  by  the  latter.  That  enhancement  of  price 
should  go  to  the  treasury,  and  not  elsewhere! 
These  four,  with  wines,  liquors,  tobaccos,  fruits, 
and  perhaps  a  few  articles  more,  might  well  con- 
stitute the  entire  list  of  tariff-taxed  articles.  The 
British  tariff  is  precisely  of  this  character,  and 
realizes  regularly  a  little  over  $100,000,000  a  year. 
Aside  from  our  national  debt,  which  is  now  being 
r  ij  idly  paid  off,  a  revenue  of  $100,000,000  from 
Hie  tariff,  and  $100,000,000  from  internal  taxes  and 
other  miscellaneous  sources,  is  ample  for  the  legit- 
imate uses  of  the  United  States.  A  larger  revenuo 
breeds  unconstitutional,  extravagant,  and  corrupt 
national  expenditures. 

When  tariff-taxes  are  laid,  not  for  reveuue,  but 


860  POLITICAL  ECONOMY. 

tD  raise  the  price  of  home  products,  some  curious 
results  are  exhibited.  For  instance,  take  blank- 
ets in  1875.  The  duty  on  imported  blankets  was 
from  85  to  95  per  centum,  equivalent  to  20  cents  a 
pound  extra  to  the  price  charged  by  foreigners. 
We  consumed  70,000,000  Ibs.  of  blankets  in  1875, 
and  the  price  of  the  whole  consumption  was  large- 
ly enhanced  by  this  duty,  indeed  this  enhancement 
was  the  sole  motive  for  putting  such  duty  on,  while 
the  revenue  collected  from  blankets  imported  in 
that  year  was  a  paltry  $8,451.22.  If  we  suppose, 
for  the  sake  of  the  illustration,  that  the  home 
blankets  were  raised  in  price  quite  up  to  the  price 
of  the  foreign  with  the  duty  added,  although  as  a 
matter  of  fact  they  were  not  raised  quite  so  high, 
then  the  people  paid  for  blankets  $14,000,000  in 
consequence  of  a  tariff-tax  in  order  that  the  treas- 
ury might  receive  §8,451.22  out  of  it !  Was  there 
ever  a  tax  more  shrewdly  devised  to  make  the  peo- 
ple pay  much  in  order  that  the  treasury  may  get  a 
little? 

All  the  bunting  that  was  used  in  this  country 
for  flags  in  the  decade  1870-80  was  doubled  in 
price  by  a  tariff-tax,  which  amounted  to  $5.70 
gold  per  piece  of  twenty  square  yards.  The  rul- 
ing price  of  the  domestic  bunting  was  just  about 
$10  gold  per  piece,  while  the  old  price  before  the 
duty  was  put  on  was  from  |5  to  $5.50  gold  per 
piece.  The  duty  was  20  cents  per  square  yard, 
and  33  per  cent  of  value  additional. 

For  the   two   fiscal  years   1873   and  1874,  the 


TAXATION.  361 

average  duty  actually  paid  on  imported  cottons 
was  36  per  centum  of  their  value  ;  on  glass  and  its 
manufactures,  46  per  centum;  on  iron  and  steel 
and  their  manufactures,  31.50  per  centum;  on 
other  metals  and  their  manufactures,  31  per  cen- 
tum ;  on  paper  and  books,  25.50  per  centum ;  and 
on  wool  and  its  manufactures,  54.50  per  centum. 

The  duties  on  hay-knives,  reaping-hooks,  scythes 
and  sickles,  were,  in  the  year  of  grace  1880,  45 
per  cent ;  on  shovels  and  spades,  if  of  iron  35,  and 
it'  of  steel  45,  per  cent;  on  anvils,  blacksmiths' 
hammers  and  sledges,  2£  cents  per  pound,  —  all  to 
make  the  farmers  happy  and  prosperous,  and  to 
encourage  the  interests  of  American  labor!  If 
taxes  could  make  a  people  prosperous,  we  should 
be  prosperous  indeed;  if  complicated  burdens 
could  make  labor  thrive,  then  American  labor 
would  long  ago  have  been  beyond  the  need  of 
artificial  help.  But  suppose,  on  the  other  hand, 
that  all  taxes  of  every  name  could  be  abolished  to- 
morrow, that  governments  could  live  on  air,  that 
all  tariffs  and  tax-gatherers  should  go  by  the  board 
together,  —  would  not  that  be  a  wonderful  relief 
all  round?  Would  anybody  suffer  from  such  a 
state  of  things  ?  Would  American  labor  pine  and 
die  for  lack  of  a  chance  to  pay  taxes  f  Would  op- 
portunities to  buy  and  sell  and  get  gain  be  less- 
ened or  destroyed  by  the  sudden  disappearance  of 
the  tax-gatherers? 

Certainly,  governments  cannot  live  on  air,  and 
therefore  taxes  will  always  be  necessary,  but  they 


362  POLITICAL   ECONOMY. 

will  also  always  be  a  necessary  evil ;  and  no  cun- 
ning manipulations  in  tariffs,  no  sleight-of-hand 
tricks  in  taxes,  no  fallacious  promises  to  the  igno- 
rant classes,  can  transform  a  negative  into  a  posi- 
tive,—  a  minus  sign  into  the  plus  sign,  —  or  enrich 
the  whole  by  depleting  the  pockets  of  a  part. 

I  append  a  few  principles  applicable  to  taxation 
in  all  forms  and  at  all  times. 

1.  Taxes  should  be  simple.  The  payers  should 
be  able  to  understand  the  whole  process  by  which 
they  are  to  be  taxed,  and  be  able  to  calculate  be- 
forehand about  what  the  government  will  demand 
from  them  as  their  contribution  to  the  public 
burdens.  Every  thing  in  taxation  should  be  open 
and  clear.  To  conceal,  to  complicate,  to  play  fast 
and  loose,  is  bad  enough  anywhere,  and  too  bad  in 
taxation.  To  combine,  as  our  tariff  does,  specific 
and  ad  valorem  duties  upon  the  same  article,  vio- 
lates this  sound  rule.  It  makes  it  difficult  for  the 
importer  to  know  what  his  tax  will  be.  It  grows 
an  abundant  crop  of  misunderstandings,  bicker- 
ings, frauds,  and  corruptions  at  the  custom-house. 

Specific  duties,  that  is,  taxes  by  the  pound, 
yard,  gallon,  and  so  on,  are  better  than  ad  valorem 
duties,  that  is,  taxes  upon  the  supposed  value,  be- 
cause they  are  simpler  and  more  calculable.  To 
combine  the  two  on  the  same  article  is  a  device 
of  "  protection,"  is  in  the  interest  of  concealment, 
and  is  a  godsend  to  informers.  Almost  all  nations 
have  been  of  late  years  simplifying  their  systems 
of  taxation.  Great  Britain  has  taken  the  lead  in 


TAXATION.  363 

this.  The  United  States  have  simplified  their 
internal-revenue  system,  while  the  tariff,  though 
somewhat  simpler  than  it  was,  is  still  the  home  of 
twists  and  turns.  Some  of  the  states,  and  notably 
Pennsylvania,  have  lately  improved  their  state 
tax-systems ;  and  attention  has  been  drawn  to  the 
defects  of  municipal  taxation  by  the  startling 
frauds  of  the  late  government  of  New  York  City. 
Much  remains  to  be  learned,  and  still  more  to  be 
done,  by  the  nation,  states,  and  local  governments, 
in  the  interest  of  a  simple,  definite  and  just  taxa- 
tion. 

2.  Taxes  should  be  low.  A  high  tax  not  infre- 
quently stops  exchanges  in  the  taxed  articles  alto- 
gether, and  of  course  the  tax  then  realizes  nothing 
to  the  government.  As  the  only  motive  to  an 
exchange  is  the  gain  of  it,  the  exchange  ceases 
whenever  the  tax  cuts  so  deeply  into  the  gain  as 
to  leave  little  margin  to  the  exchangers.  The 
greater  the  gain  left  to  the  parties  after  the  tax  is 
taken  out,  the  more  numerous  will  the  exchanges 
become,  and  the  greater  the  number  of  times  will 
the  tax  fall  into  the  coffers  of  the  government. 
In  most  articles,  consumption  increases  from  a 
lowered  price  in  a  greater  ratio  than  the  diminu- 
tion of  the  rate  of  tax  ;  so  that  the  interests  of  the 
consumers  and  of  the  revenue  are  identical.  On 
certain  articles  of  luxury  and  ostentation,  high 
taxes  may  properly  enough  be  laid,  because  theii 
incidence  will  hardly  tend  to  diminish  consump- 
tion, and  it  would  be  scarcely  to  be  regretted  if 


364  POLITICAL  ECONOMY. 

it  did.  Fashion  is  abashed  whenever  her  fancies 
become  too  common ;  and  a  high  tax  sometimes 
works  in  harmony  with  fashion,  and  becomes  pro- 
ductive when  and  because  comparatively  few  are 
called  on  to  pay  it.  The  rich,  however,  are  more 
evenly  reached  through  an  income  tax,  than 
through  any  taxes  on  expenditures  no  matter  how 
shrewdly  levied. 

A  splendid  illustration  of  the  general  principle 
that  traffic  increases  as  charges  diminish  is  fur- 
nished by  the  railroads.  In  the  ten  years  1870-79 
the  Lake  Shore  and  Michigan  Southern  Railroad 
lowered  its  charge  for  moving  one  ton  of  freight 
one  mile  from  $1.50  to  $.64,  and  the  number  of 
tons  moved  that  distance  mounted  up  from  574,- 
035,571  to  1,733,423,440;  that  is,  charges  being 
reduced  57  per  cent,  traffic  increased  202  per 
cent,  and  earnings  increased  22  per  cent.  In  the 
eleven  years,  1869-79,  the  New-York  Central  and 
Hudson-River  Railroad  decreased  its  charge  per 
ton  from  $2.38  to  $.79,  that  is,  67  per  cent ;  and 
the  tons  moved  went  up  from  589,362,849  to 
2,295,827,387,  that  is,  289  per  cent,  and  the  earn- 
ings increased  30  per  cent.1  The  Boston  and 
Albany  Railroad  and  Pennsylvania  Railroad  show 
similar  though  less  striking  results.  The  history 
of  the  Atlantic  cables  illustrates  equally  well  this 
fundamental  principle  of  trade  and  taxation,— 
each  lowering  of  the  charge  per  word  for  trans« 
mission  has  been  followed  by  a  sudden  and  large 
increase  in  the  number  of  words  transmitted. 

i  Edward  Atkinson  to  Merchants'  Club  of  Boston. 


TAXATION.  365 

3.  Taxes  should  be  economical.    That  is  to  say, 
the  tax-money  should  be  kept  out  of  the  pockets 
of  the  people  as  short  a  time  as  possible,  disburse- 
ment following  quick  upon  collection.     It  is  poor 
policy  to  gather  taxes  at  the  beginning  of  the  year 
which  will  not  be  disbursed  till  the  end  of  the  year. 
Let  the  people  use  their  money  till  it  is  wanted  at 
the  treasury ;  and  if  the  taxes  do  not  then  come  in 
as  fast  as  they  are  wanted,  it  is  better  to  issue  what 
are  called  in  England  exchequer  bills,  and  in  this 
country  certificates  of  indebtedness,  to  be  redeemed 
at  the  end  of  the  year  from  the  proceeds  of  the 
taxes,  than  to  let  the  people's  money  lie  idle  in  the 
treasury. 

4.  Taxes  should  relate  to  property  and  not  to 
person.    I  do  not  see  how  a  poll  tax  can  be  justi- 
fied to  any  man's  reason.     It  stands,  at  any  rate, 
upon  different  ground  from  all  other  taxes,  and  is 
to  be  defended,  if  it  can  be  defended  at  all,  by  a 
different  set  of  reasons  from  those  applicable  to 
other  taxes.    A  man  who  pays  a  poll  tax  must 
make  some  exchanges  in  order  to  enable  himself 
to  pay  it,  and  why  should  not  the  tax  be  condi- 
tioned on  the  exchanges,  as  all  other  taxes  are, 
rather  than  on  the  poll,  the  possession  of  which 
does  not  enable  a  man  to  pay  taxes  at  all  ?    It  is 
usually  said,  that  poll  taxes  are  paid  to  govern- 
ment for  the  protection  of  one's  person,  and  prop- 
erty taxes  for  the  protection  of  one's  property :  is, 
then,  the  government  at  liberty  to  fail  to  protect  the 
person  of  one  who  pays  no  poll  tax  ?   Are  not  the 


8()6  POLITICAL  ECONOMY. 

persons  of  all  citizens  or  subjects  equally  sacred  to 
the  law,  whether  they  pay  poll  taxes,  or  not  ?  That, 
therefore,  is  no  sound  reason  for  a  poll  tax.  The 
whole  truth  seems  to  me  to  be,  that  the  right  to 
(ax  on  the  part  of  the  government  grows  out  of 
tire  whole  service  rendered  by  government  to  the 
individual,  and  that,  as  the  return  service  (or  tax) 
is  connected  with  and  limited  by  the  exchanges 
which  the  individual  makes  under  the  eye  of 
government,  the  tax  itself  should  be  proportioned 
as  nearly  as  possible  to  the  amount  of  those  ex- 
changes, and  should  be  justified  simply  on  the 
ground  of  them. 

5.  Taxes  should  not  disturb  prices.     Taxes  are 
an  element  which  may  be  made  to  play,  —  which 
have  been  made  to  play,  —  fantastic  tricks  with 
prices.     What;  has  become  famous  under  the  name 
of   "  Protection "  is  nothing  in   the  world   but   a 
shrewd  scheme  to  raise  certain  prices  by  means  of 
certain  taxes.     Taxes  are  too  serious  and  sacred  a 
matter  to  be  made  a  cat's  paw  of  in  this  indirect 
manner  for  an  unworthy  purpose.     Taxes,  like  an 
exclusive  income-tax,  which  affect  no  prices,  are 
obviously  the   best  of  all;    taxes,   which    affect 
prices  less  than  other  taxes,  are  better  than  those 
taxes;    while   taxes,  like    protective   tariff-taxes, 
which  are  designed  to  disturb  prices,  are  of  neces- 
sity the  very  worst  of  all. 

6.  Taxes  should  be  considerate,  towards  the  poor. 
If  the  necessities  of  the  government  require  it, 
it  has  the  right,  in  accordance  with  the  principles 


TAXATION.  3G7 

that  have  now  been  unfolded,  to  demand  :>f  all 
persons,  who  are  capable  of  making  exchanges 
and  who  do  make  them,  something  in  the  form  of 
taxes.  But  it  is  every  way  better,  when  possible, 
that  people  of  very  small  incomes  should  be  ex- 
empted from  taxation  altogether ;  because,  in  the 
present  age  of  the  world,  the  well-to-do  citizens  of 
every  country  are  able  to  bear  without  too  great 
difficulty  the  legitimate  burdens  of  their  govern- 
ment ;  and  because  nothing  tests  better  the  degree 
of  civilization  which  a  nation  has  reached  than  the 
care  and  solicitude  it  displays  for  the  welfare  of 
its  poorer  citizens. 

The  principal  propositions  of  this  chapter  may 
be  summarized  thus :  — 

1.  Taxes  are  in  effect  voluntary  on   the  part  of 
the  payers,  and  are  a  return  SERVICE  for  services 
rendered. 

2.  The  only  source  of  taxes  are  the  GAINS  of 
exchanges. 

3.  The  freest  possible  exchanges  are  alike  the  in- 
terest of  GOVERNMENTS  and  peoples. 

4.  Direct  taxes  are  letter  than  indirect,  and  'M 
INCOME-TAX  the  best  of  direct  taxes. 

5.  TARIFF-TAXES  are  only  tolerable  on  a  few 
luch  articles  as  tea  and  coffee. 

6.  Low  rates  in  taxation  work  like  low  charges 
in  transportation. 

1.  Those  taxes  are  always  the  lest  which  dhturl 
current  PRICES  the  least. 


INDEX. 


Abraham,  56,  212. 

Abstinence,  124, 136. 

Accommodation  bills,  327. 

Adam  Smith,  14,  24,  31. 

Ad  valorem  dutiex,  174,  362. 

Advantage*  of  credit,  336. 

Advantage  of  farmers,  98. 

Advantages  of  an  income  tax,  851. 

Agriculture,  121, 169. 

Alaska,  18. 

Alloys,  262. 

Antoine  de  Montchristlen,  11. 

Aristophanes,  267. 

Aristotle,  11, 14. 

Atlantic  cable,  92. 

B. 

Baker,  1«. 

Banks,  34,  310. 

Bank  of  Amsterdam,  269. 

Bank  of  England,  223,  259,  273,  304, 

314. 

Bank  bills,  301. 
Bank  deposits,  803. 
Bank  discounts,  308,  810. 
Barter,  66, 213. 
Bastlat,  14,  28,  218. 
Baacom,  131. 
Belgium,  181. 

Bills  of  exchange,  325,  828. 
Blankets,  161, 166,  360. 
Book  accounts,  298. 
Bonds,  21,  300. 
Bowen,  240. 
Brlckmaking,  207. 
Bright,  176,  186, 194. 
Buckle,  24. 
Bunting,  106,  360. 
Buyer*  and  sellers,  13,  28. 


o. 

Cane  sugar,  858. 

Capital,  82,  88, 110, 122, 181. 

Carey,  62,  86, 122, 132, 14«,  39*X 

Cases  of  exchange  (6),  22. 

Cash  credlu,  334. 

Cautions,  132. 

Census  of  1870,  231. 

Character  in  economic*,  111. 

Chase,  282,  283. 

Cheaper  products,  143. 

Checks,  318. 

Check  bank,  319. 

Chemistry,  90. 

Cicero,  251. 

Circular  letter*  of  credit,  338. 

Claims,  20,  290. 

Class  of  facts,  15. 

Classes  of  services  (3) ,  72. 

Clearings,  21. 

Clearing-houses,  293. 

Cobden,  176. 

Colonies,  90. 

Commerce,  61. 

Comfort*  and  burdens,  lOOt 

Common  laborers,  109. 

Commodities,  17,  98. 

Comparison,  212. 

Condi  I  lac,  24. 

Consols,  301. 

Constitution  of  II.  8.,  148. 

Consumption,  81. 

Corn,  62. 

Corn-law* ,  76. 190. 

Cost  of  capital,  140. 

Cost  of  labor,  138. 

Cost  of  production,  137, 1ST. 

Cotton,  72. 

Cox,  Hon.  8.  8.,  171. 

Credit,  290. 

Ciutom-houM  at  Bt.  Louis,  1M. 


370 


INDEX. 


D. 

Debt,  292. 

Decline  of  profits,  136. 

Deduction,  15. 

Defoe,  43. 

Demand  and  supply,  6T,  74, 136. 

Denominations,  214,  261. 

Deposit,  305. 

Depreciation  of  coins,  270. 

Desires,  43. 

Direct  taxes,  344. 

Disadvantage  of  credit,  338. 

Diversity  of  advantage,  48, 151. 

Division  of  labor,  115. 

Dollar,  222. 

Dollar  bill,  222. 

Double  standard,  256. 

Durability  of  coins,  254. 

Duties  on  imports,  361. 

Duty,  22. 


E. 

East  India  Company,  252. 

Efforts,  46. 

Eliot,  197. 

Emperor  of  Brazil,  158. 

England,  244,  245. 

English  manufacturers,  172. 

English  re-coinage  of  1696,  269. 

Equation  of  competition,  75. 

Estimates,  27,  52, 

Exchanges,  15,  K. 

Exchequer  bilk,  365. 

Excise,  157. 

Exports  arc  not  taxed,  149. 

Exports  of  coin,  252. 

Exports  per  capita,  170. 


F. 

France,  175. 

Free  breakfast-table,  165. 

Free  materials,  173. 

Free  trade,  arguments  for,  178-208. 

Free  trade,  178. 

Free-trade  treaties,  201. 

French  and  English  exports,  193. 

French  franc,  265. 

Funding  bond*,  283. 


G. 

Gains,  54. 
Gainsborough,  73. 
German  manufacturers,  172. 
German  mark,  264. 
Germany,  245. 
Gladstone,  ITT. 


Glass-making,  207. 

God  is  a  giver,  84. 

Gold  and  silver  coins,  233,  245,  246. 

Gold  and  silver  the  best  money,  248. 

Governments  and  coinage,  255. 

Greenbacks,  21,  240,  282. 

Gresham's  law,  268. 


H. 

Health,  60. 
History,  16. 

Hollander's  windmill,  83. 
Human  nature,  15. 
Hume,  231. 


Implements,  125. 

Imports  of  coin,  252. 

Imports,  170. 

Income  taxes,  346. 

Income  taxes,  objections  to,  354. 

Indirect  taxes,  344,  354. 

Induction,  15. 

Instruments  of  credit,  298. 

Insurance  companies,  307. 

Intellect,  56. 

International  alliance,  177. 

Internal  revenue,  161. 

Intrinsic,  32. 

Inventions,  101. 

Iowa,  97. 

Isaac,  57. 

Israelite,  57. 


J. 

Jacob,  57. 

Jealousy  of  excellence,  60. 

Jevons,  319. 

Jewett,  H.  J.,  108. 

Jews,  58. 

Julius  Caesar,  245. 


Kernel,  29. 
Kiehl,  24,  29. 


Labor,  82, 103. 

Laboring  classes,  190. 

Land,  82, 128. 

Law  of  diminishing  returns,  I 

Law  of  production,  95. 


871 


Laws  and  usages,  16. 

Leather,  207. 

Legal  tender,  241. 

Liberty  to  exchange,  145. 

Liszt,  107. 

Loans  on  call,  312. 

London,  253. 

London  Bridge,  12. 

London  clearing-house,  321. 

Louisiana,  149. 

IAJW  taxes,  363. 


M. 

Machinery,  104. 

Macleod,  12,  24,  40, 122,  218,  227. 

Macoute,  237. 

Maine  cotton-apianer,  152. 

Malthus,  62,  91. 

Manufactures,  121. 

Mark  Lane,  68. 

Massachusetts,  149. 

Maximum  production,  178. 

Meissonier,  106. 

Mercantile  sagacity,  54. 

Mercantile  system,  202. 

Milkman,  16. 

Mill,  62. 

Milwaukee,  71. 

Mississippi  cotton-planter,  151. 

Modes  of  taxation,  343. 

Money  as  a  standard,  216. 

Money  a  measure,  217. 

Money,  129,  209,  228. 

Mont  Cenis  Tunnel,  153. 

Morals,  60. 

M<>  I  ion,  92,  99. 

Motive  powers,  94. 

Movables,  18. 

MUM: rave,  Gov.,  23. 

Mussulman,  57. 


N. 

Name-dollar,  237. 
Names  of  the  science,  12. 
National  banks,  279. 
Natural  agents,  82,  97. 
New  Hampshire,  86. 
Newspapers  and  the  tariff,  107. 
New  York  clearing-house,  322. 
Nullification,  165. 


o. 

Oak-tree,  35. 
Opportunity,  146. 
Ordento  pay,  318. 
Owuers,  2o. 


P. 

Parepa  Rosa,  108. 

"  Par  of   International    exchange*," 

330. 

Paul  the  apostle,  53. 
Peabody,  George,  278. 
Peace  and  war,  183. 
Peel,  Sir  Robert,  276. 
Persons,  25. 
Personal  services,  19. 
Pbeidon,  210. 

Phelps,  Dodge,  &  Co.,  176. 
Physician,  19. 
Piano  in  parlor,  79. 
Pig  iron,  188. 
Pin-making,  117. 
Pliny,  211. 

olitical  Economy  defined,  90. 

Pool,"  12. 

oor's  "  Railroad  Manual,"  128. 

rice,  65,  228. 

•rices  raised  by  protection,  169. 

'rlnciples  of  taxation,  343,  362. 

'rocesses,  80. 

roduetion,  79. 

•rofessional  laborers,  112. 

•romisi-s  to  pay,  219,  271,  298. 

'romissory  notes,  300. 

•ropurty,  30,  292. 

•roperty  laxes,  365. 

'rophet,  123. 

Protection,"  151, 159,  198,  8M. 
roU-ctlTB-tariff  defined,  159. 

toudlion,  188. 

'rovidence,  16,  179. 

'revision  trade  of  Paris,  184. 

'urelmMiig  power,  63. 


Quality,  89. 
Quexnay,  14. 
Quinine,  195. 


Q. 


R. 


Railroads,  364. 

Kali'  of  discount,  312. 

Itaw  materials,  127, 188 

lU-al  estate,  18. 

Reciprocity.  180. 

"  Redemption,"  32. 

Rt-nt  of  land,  349. 

Reproduction,  134. 

Resumption,  302. 

Revenue,  60. 

Roman  I  ,aw,  295,  296,  Mi. 

Rowley,  206. 

Rlcardo,  62. 

Rlgh's,  20. 

ItuMliui  Empire,  !*• 


372 


INDEX. 


8. 

Bales,  13, 104. 

Bait,  183. 

Sandwich  Islands,  183. 

Satisfactions,  55. 

Bay,  23. 

Science  defined,  14, 115. 

Scotland,  298,  334. 

Sensibility,  56. 

Services,  28. 

Sbares,  17,  34. 

Bhip-building,  160. 

Bilk,  359. 

Silver,  42. 

Simple  taxes,  362. 

Skilled  laborers,  111. 

Small  establishments,  120. 

Source  of  taxes,  343. 

Specie  payments,  285. 

Specific  duties,  174, 362. 

Steel  rails,  183. 

Subject-matter  of  Political  Economy, 

14. 

Subsidiary  silver,  257,  258. 
Sugar,  171. 
Summaries,  76,  143,  208, 288,  341, 367. 


T. 

Tarifa,  153. 

Tariff-demands,  154. 

Tariff  defined,  155. 

Tariff  for  revenue,  156. 

Tariff  taxes,  355. 

Taxation,  342. 

Taxing  expenditures,  345. 

Tax  on  farm  implements,  361. 

Tea  and  coffee,  356. 

Tennyson,  181. 

Things  used  a»  money,  225,  226. 


Trade  Is  natural,  62. 
Troughton's  inch,  296. 
Tubal-Cain,  126. 
Tuscany,  194. 

u. 

Unique  products,  36. 

United  States  Government,  18. 

Universal  coinage,  221,  260. 

Usages,  16. 

Usury-laws,  286. 

Utility,  17,  32,  33,  88. 


V. 

Value,  26,  29,  38,  40,  78. 
Vanderbilt,  58. 
Variations  in  value,  240. 
Venice,  304. 
Vermont  line,  147. 
Vernet,  107. 
Villafranca,  106. 


w. 

Wages,  107, 129. 

Wages-class,  191. 

Walker,  163. 

Wants,  25. 

Ways  and  Means  Committee, ! 

"Wealth,"  14,  25,  31. 

Whately,  12,  24. 

Wheat,  69. 

Whitney,  the  singer,  33. 

Whittier,  59,  181,  339. 

Will,  56. 

Wool,  74, 178. 

Woollen.,  US,  IB. 


UC  SOUTHERN  REGIONAL  LIBRARY  FACILITY 


A     000692158     9 


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